Another major development is REITs coming closer to reality
The announcement by the finance minister that an additional tax deduction of Rs 50,000 will be available to first-time buyers will bring cheer to those contemplating their first house purchase. The benefit comes with a few pre-conditions, however. The cost of the house shouldn’t exceed Rs 50 lakh and the value of the loan shouldn’t exceed Rs 35 lakh.
“This added deduction may not benefit housebuyers in cities like Mumbai and Delhi, given the high prices there. The first-time buyer living in smaller cities stands to benefit more from it,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors. Investors in various tax brackets will save around Rs 5,000-15,000 owing to this enhanced benefit.
For those who don’t own a house and also don’t have a House Rent Allowance (HRA) component in their salary, the deduction available to them under Section 80GG has been hiked from Rs 24,000 to Rs 60,000. People will save tax in the range of Rs 6,000-18,000 on this provision now.
This hike in deduction will also benefit the self-employed. Now that the deduction has been hiked, more people are likely to claim it. Earlier, a lot of people simply ignored it, say tax experts.
The removal of dividend distribution tax on real estate investment trusts (REITs) will go a long way towards making this structure a reality in India. “DDT was a major impediment. With it being removed, REITs do look like coming closer to reality,” says Anshuman Magazine, CMD, CBRE South Asia.
Once REITs become operational, small investors will be able to invest in commercial real estate with only a small corpus. REITs will allow them to diversify their portfolio, and benefit from the low correlation that real estate has with equities. Those looking for steady dividend income may also investin REITs.
Another positive in the budget, according to Ankur Kapur, founder, Ankur Kapur Advisory, is the news that the government will stick to the 3.5 per cent fiscal deficit target. This may allow the RBI to cut rates, which may result in home loan rates softening, provided banks pass on the benefits.