India's income tax system is built in favour of the non-salaried rich. One facet of this is income tax laws encouraging investment in real estate. Many investors buy residential homes and then keep them locked. They drive up home prices and a few end up cornering a good chunk of the residential real estate market. They also make renting difficult. And this is not environmentally friendly as well.
Given these reasons, income tax laws that incentivize investing in real estate need to be rewritten. The agenda can perhaps be set with the interim budget which is due on 1 February and then moved further once the budget for 2024-25 is presented in July after the Lok Sabha elections. In this piece, we will look at why this needs to be done and what exactly the government can do.
HOME LOANS
Take a look at the chart. It plots two curves. The ratio of priority home loans given by banks to overall home loans and the ratio of non-priority home loans given by banks to overall home loans.
Now, before we analyse the chart, it's important to state a few things. First, priority sector home loans are defined as: "Loans to individuals up to ₹35 lakh in metropolitan centres (with a population of 1 million and above) and up to ₹25 lakh in other centres... provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed ₹45 lakh and ₹30 lakh, respectively." The remaining home loans are non-priority home loans.
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