Tax make or tax break?

Home loan borrowers as well as lenders would like to believe that the government would not withdraw the tax breaks on interest expenses on home loans. The tax exemption introduced in 2001 has resulted in housing loans as the main driver of credit. There has been an uncertainty over the continuation of these tax breaks following recommendations of the committee headed by Vijay Kelkar on direct taxes. The thrust of the committeeâ€™s argument is that the tax exemption is an indirect subsidy of Rs 50,000 per year to borrowers in the highest tax bracket. However, lenders say the government should provide incentives for home loans in India since mortgages account for only 2% of the GDP against 8% in China, and 20% in the case of Hong Kong and Singapore. Industry persons also say that withdrawing tax exemptions, already handed out by the government, may be a politically difficult move. According to Keki Mistry, managing director, HDFC, the government should allow individuals to provide for depreciation of property cost over a period of years. This could apply to a property up to a certain value so that lower income groups could also benefit. Corporate houses that invest in property can avail of tax benefits by providing for depreciation but this facility is not available for individuals. In addition to wanting tax breaks to continue, lenders have a separate wish list for the housing finance business. A long-standing representation has been the demand for according infrastructure status to housing finance. Besides housing finance companies, banks are also emerging as big players in home loans. In the past two to three years, a majority of the incremental growth in their asset portfolio has been through home loans. In addition, for many new generation banks, home loans comprise almost 40-50% of their loan portfolio. Moreover, given that deposits of up to three years maturity are the major source funds for banks, they are looking for signals in the Budget to raise long-term resources. According to Nageshawara Rao, MD, IDBI Bank, according infrastructure status with a more liberal approach to housing finance will help banks to raise long term bonds, which can be used to finance home loans and at the same times avoid any asset liability mismatch. With an infrastructure label home loan providers will find it easier to raise funds since those who invest in the core sector will be entitled to tax breaks under 10(23)G of the Income-Tax Act. The industry wants government to adopt a liberal approach while defining dwelling units eligible for tax sops. Besides, lenders want even loans above Rs 10 lakh to be considered as priority sector since there are several borrowers in metros who seek loans of above Rs 10 lakh.

Tax make or tax break?

Home loan borrowers as well as lenders would like to believe that the government would not withdraw the tax breaks on interest expenses on home loans. The tax exemption introduced in 2001 has resulted in housing loans as the main driver of credit.

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