Pre-Budget Expectation: Need To Increase Tax Deduction Limit On Home Loans
Interest rates have risen steeply in the past two years, making it difficult for consumers to access credit. The tax benefits on housing loans offer some relief to buyers because they reduce the effective rate for the borrower. However, there is a compelling need to review the Rs two lakh deduction under Section 24. That limit was set when property prices were low and the average home loan was Rs 20-30 lakh. Now apartments in big cities sell for Rs 1.5-2 crore and the average home loan is Rs 60-70 lakh. The tax deduction limit should be raised to at least Rs 3 lakh to make a meaningful difference.
The budget should also redefine affordable housing. Right now, affordable housing is defined as a house costing up to Rs 45 lakh. This limit should be raised to at least Rs 60 lakh to be meaningful.
An amendment to last year’s budget made a fundamental change by doing away with the indexation benefit and lowering the tax rate for long-term capital gains from non-equity funds. This created a level playing field for debt funds and fixed deposits, but hybrid, gold and global funds suffered collateral damage. Gains from these funds are now added to income and taxed at a normal slab rate, which makes them very unattractive for investors. Surely, this was not the intention of the proposal. It is hoped that the coming budget will revisit this rule and make a distinction between pure debt funds and hybrid schemes.
Long-term gains from listed stocks are tax-free up to Rs one lakh in a year and taxed at 10 per cent beyond that threshold. Short-term gains are taxed at 15 per cent. However, investments in unlisted stocks are taxed at a higher rate. Long-term gains are taxed at 20 per cent after indexation and short-term gains are added to your income and taxed as per the slab rate. Investments in unlisted companies should also get the same tax benefits as listed shares.
The budget also needs to remove another anomaly in the financial system: the double taxation of dividends. The dividend is paid by a company out of its earnings on which tax has been paid. But it is taxed again once it reaches the shareholders, and that too at normal slab rates. The Budget should make dividends from companies tax-free in the hands of shareholders.
The author is Founder and MD - MyMoneyMantra
