Finance Minister Nirmala Sitharaman will present Budget 2025 today, and the real estate sector anticipates a strong focus on affordable and middle-income housing. Industry stakeholders are seeking an expanded definition of affordable housing, tax benefits for homebuyers to boost affordability, and incentives for developers to drive the construction of budget-friendly homes.
The need of the hour is to provide more tax sops for both homebuyers and developers wanting to undertake affordable and middle-income housing projects. Real estate experts say the government should raise the deduction limit for interest payments on home loans from the existing ₹2 lakh a year to ₹5 lakh, which will add momentum to housing demand.
Boost to Affordable Housing
Increase budgetary support and incentives to make housing more accessible.
The current growth trajectory is skewed towards luxury and premium housing. Considering the specific housing needs of India’s middle class, this momentum cannot ride solely on higher-priced homes while affordable housing continues to languish. Experts say the government should focus on providing more sops for affordable and mid-segment housing.
According to Anuj Puri, chairman of Anarock, the current definitions of affordable housing, based on size, price, and buyer income, require urgent revision. While the size criterion (60 sq. m. carpet area) is reasonable, the price cap of ₹45 lakh is unrealistic in high-cost cities like Mumbai. The cap should be raised to at least ₹85 lakh in Mumbai and ₹60-65 lakh in other metro cities to reflect market realities. Such revisions would enable more properties to qualify as affordable housing, granting buyers access to lower GST rates (1% without ITC) and other subsidies.
{{/usCountry}}According to Anuj Puri, chairman of Anarock, the current definitions of affordable housing, based on size, price, and buyer income, require urgent revision. While the size criterion (60 sq. m. carpet area) is reasonable, the price cap of ₹45 lakh is unrealistic in high-cost cities like Mumbai. The cap should be raised to at least ₹85 lakh in Mumbai and ₹60-65 lakh in other metro cities to reflect market realities. Such revisions would enable more properties to qualify as affordable housing, granting buyers access to lower GST rates (1% without ITC) and other subsidies.
{{/usCountry}}According to the Ministry of Housing and Urban Affairs, affordable housing is defined based on property size, price, and buyers’ income. For instance, affordable housing is a house or flat with a carpet area of up to 90 sq. m. in non-metropolitan cities and towns and 60 sq. m. in major cities and valued up to ₹45 lakh for both. On the other hand, the central bank’s definition is based on the loans given by banks to people for building a house or buying apartments.
With such price revisions, more homes would qualify for the affordable price tag and more buyers could avail of benefits such as lower GST rates at 1% without ITC and government subsidies, said Puri.
Tax Relief for Homebuyers
Higher deductions on home loan interest and principal repayment.
On the demand side, real estate experts have urged for a separate and higher deduction for housing loan principal repayment (up to ₹500,000), currently capped at ₹150,000 under section 80C. The limit on tax deduction on interest paid can be increased from the current ₹2 lakh to about ₹4-5 lakhs in case of let-out property.
They say tax benefits for first-time homebuyers in applicable affordable housing projects under 80EEA should be expanded. The current capping of ₹150,000 and loan sanction timeline until March 2022 can also be expanded to boost housing for the masses.
Tax exemptions should be offered on rental income to boost housing demand, especially among investors, they say.
According to G Hari Babu, national president of Naredco, “The Union Budget 2025 presents a critical opportunity to address key challenges and propel the real estate sector towards sustainable growth. Revising the affordable housing price cap from ₹45 lakhs to ₹60 lakhs, which has remained unchanged for a decade, is imperative to account for rising input costs and inflation. Similarly, increasing the income tax deduction limit on interest payments under Section 80C from ₹2 lakhs to ₹5 lakhs and reducing home loan interest rates will make homeownership more accessible.”
Incentives for Real Estate Developers
Tax breaks and subsidies to encourage housing projects, especially in the affordable segment.
Restore the 100% Tax Holiday for Developers
To boost supply and incentivize developers to build more affordable housing, the government can re-introduce the ‘100% Tax Holiday’ benefit they previously enjoyed under section 80-IBA in the Finance Act, 2016. This section provided for major tax relief on the profits earned from developing and building affordable housing projects.
To boost the supply of affordable housing, CREDAI recommends extending the lower 15% income tax rate, currently available to manufacturing companies, to affordable housing projects. This measure would incentivize developers to increase their focus on affordable housing developments, thus bridging the housing gap.
Increased Allocation for Stressed Projects Through the SWAMIH Fund
This can improve liquidity in stressed residential developments, said experts.
The finance ministry should allocate ₹50,000 crore to the second tranche of the Special Window for Affordable and Mid-Income Housing (SWAMIH) fund in the upcoming union budget for FY 2024-2025. This should be accompanied by other budgetary support and relaxations, including allowing input tax credit under GST and incentives for rental housing to achieve the housing for all targets.
Simplification of GST laws
A pre-budget expectations survey by Grant Thornton Bharat said rationalising input credits to developers under GST would reduce project costs, improve working capital efficiency for developers, and potentially lower property prices for consumers.
Encourage Rental Housing
The government should prioritise funding and incentives for rental housing development to meet growing housing demand and high ownership costs. This will increase affordable rental options, benefit a broader segment of society, and encourage private sector investment to address housing shortages and improve urban affordability, the survey said.