HFCs seek tax sops for home loan borrowers

From ET Realty

NEW DELHI: Overwhelmed by last year’s budget that announced initiatives like Housing for all by 2022, the housing finance industry this time around has urged the government to slash taxes like services tax that fall under its jurisdiction and dole out additional subsidies to the end users and the industry as a whole.

The industry is expecting initiatives that can directly benefit the end users, which further helps in giving a much-needed spur to the flagship scheme of the Modi government. The government of India is due to present its Union Budget plan on Feb 29, 2016.

“The affordable housing scheme by the government, especially for the urban sector, has been great,” said Deo Shankar Tripathi, CEO at Aadhar Housing Finance.

The industry leaders further say that it is time for the government to push its housing for all initiative even further and come up with more lucrative approach like doing away with service taxes and the duties that fall under its jurisdiction. This could eventually help raise the interest level of the buyer and spur the housing demand, thereby helping the sector come out of the half a decade turmoil.

“When a borrower seeks Rs 6 lakh loan, he ends up paying around Rs 2 lakh more on the property. It is because the beneficiary has to make additional arrangements like maintaining at least 10% cash margin, stamp duty, legal charges, evaluation charges etc. The government can consider stamp duty exemption in the low income and affordable housing segment as it is not possible for a small borrower to keep aside this amount,” said Tripathi of Aadhar.

“The government may also consider directing subsidy amount to the finance company so that the borrower can get 100 per cent finance on the property,” he urged. The government of India wants houses for everyone by 2022 and in the lower segment in particular and the subsidy of 6.5% up to Rs 6 lakh on borrowing is already in place. “For the economically weaker sections and LIG, the government has increased the income criteria, which now is up to Rs 6 lakh Tripathi pointed out.

“The centre in the name of providing subsidy may consider slashing the additional burden of service tax or completely doing away with it, as the tax falls under its hold. We further recommend that that the properties which are upto Rs 30 lakh to Rs 35 lakh should be free from such taxes,” Sanjaya Gupta, MD, PNB Housing Finance said.

“In order to give the housing for all initiative a much needed push, the government should also see if the state grants could be linked to state policies on mass housing,” he urged.

Indian home loan seeker is under a lot of pressure today. He pays 10% to 12% of interest on his borrowings. “If we look at the global trend nowhere the interest rates exceed 3% to 4%,” says Hemal Mehta, Partner, Deloitte Haskins and Sells.

“Culturally, Indians are tuned to make property investments. And looking at the global trends, it does not feel logical to borrow money at 10-12% and make a house and give away the potential and the lifelong savings in the repayment of loans,” he feels. Hence, the government should consider giving subsidies to the mortgage companies and ask them to give interest benefits to the end users, he adds.

Housing for all by 2022 requires development of about 11 crore housing units and this will need investment of more than $2 trillion. The industry further wants the government to increase the Rs 12,000 crore for the initiative. Furthermore, the Housing for All by 2022 scheme will depend on investment in the affordable housing projects and timely execution of such projects.

“It is therefore imperative for the government to consider extending infrastructure status to housing and real estate sector. This will enable them access to funding from banks and other financial institutions at a much lower cost. We recommend formation of a nodal agency to coordinate efforts of various stakeholders and ensure faster decision-making,” says Harshil Mehta, CEO, DHFL.

The industry leaders, under other recommendations, urged the government to give more tax break on the repayment of the home loan repayment; replace the distribution tax with withholding tax and increase the priority sector home loan lending up to Rs 40 lakh, which as of now is up to Rs 28 lakh.

The industry is also finding it difficult to borrow money from the foreign investors. Struggling to tap foreign investments, Ashwini Kumar Hooda, deputy MD, IndiaBulls Housing Finance said, “The government has allowed finance companies like us to raise money from outside India. However, we are still stuck with the domestic market because the foreign borrowing cost us more due to the 5% withholding tax. We request the government to do away with the same”.

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