Budget 2014: Take Away Those Tax Sops For Housing

8 comments Written on July 8th, 2014 by
Categories: Budget2014, HomeLoans, RealEstate

Housing sops need to go. They take away investment from what is truly more productive - small and large businesses, local authorities and potentially even agriculture - in favour of real estate. We need to stop this practice immediately.

I’ve written about this. But I need to repeat it, for every budget. Let’s do the bullet points of the excessive sops for housing.

  • The Principal of a loan paid back to buy a house is tax exempt (upto 1L). In no other loan is the principal exempt - not even for education loans!
  • Losses from house property (after accounting for interest) can be offset by any other head of income, including salaries. You can’t offset losses from investing in companies, or buying debt funds with your salary. Unnecessary sop.
  • 30% of rent received is exempt from tax, as “maintenance”. Why not make house renting a business, where you have to get your expenses approved by the taxman like everyone else?
  • Housing is a priority sector for lending. Interest rates are lower there than for any other sort of loan (except maybe agriculture).
  • You can invest the capital gains on anything - including when you sold shares of a company - into a residential property, and you don’t have to pay capital gains tax. This is unfair - why can’t I get the same treatment if I reinvested gains back into other companies?

Another way to curb bubbles is to free land ownership and create a good real estate regulator. Real estate should be made a business like anything else and the above sops removed. We should increase housing taxes - they are pittance in most places - in order to provide better local facilities. Zoning should be enforced, though like the unfortunate residents of Campa Cola society, things will get ugly.

The industry needs no sops - it needs to be cut down to size.

If you wonder why real estate prices don’t come down, it’s because of these unnecessary tax and interest sops our government offers. It is time to rethink this concept, and make that money available for truly productive investment instead.

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The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

8 comments “Budget 2014: Take Away Those Tax Sops For Housing”

Moreover, it is the main source of black money. Over 90% of all real estate transactions are in cash and the registration costs are under declared big time.

Who will bell the cat ?

Do u know how many politicians are into the construction bizz ? either nami or benami ?
I think tax sops on housing will go up, not down, never mind i we cant afford to buy a house .

Why break by EMI paying capabilities :-(

Because it makes bubbles out of these prices. If you buy to live in it, the house price should be low and stay there, not keep going up, so other people can buy. High EMIs will ensure prices come down to points where the EMIs are affordable.

Agree. Strange how we want prices of essentials to come down but that of houses to go up.

You can dream :)

I completely agree with your sentiments but I don’t think it will ever happen. Almost everyone able to get hold of surplus capital is invested in real estate. It’s an enormous waste. If not real estate, it will go into gold.

People just don’t trust the government to bring out their money into public and they don’t trust each other to invest in businesses. This is a very low trust society and has always been so.

I think the real issue is to remove any tax sops for buying a second home.

Bubbles exist everywhere. For instance, there is absolutely no reason for dropping 520 points of Sensex yesterday.
The real estate bubble will never burst because, the land mafia, the builders, the banks, the material suppliers, the Government(Local taxes) is running like parasites. And as long as greed plays the prominent role, the bubble remains………


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