The housing sector achieves great prominence in the recommendations of the Kelkar Task Force.

Among other things, the Kelkar committee report suggests that the tax exemption on the interest portion of a housing loan be reduced from Rs 1.5 lakh to Rs 1 lakh in 2003-04, Rs 50,000 in 04-05 and be made nil in the following year.

If accepted, this recommendation is bound to affect the construction industry and also have a multiplier effect on cement and steel.

The committee offers two more suggestions on housing. One, incentivise home loan borrowings by providing a 2 per cent interest subsidy through the National Housing Bank on loans below Rs 5 lakh.

Two, reduce the amount of mortgage interest deductible for taxable interest purposes from Rs 1.5 lakh to Rs 50,000.

In the last budget, continuing its thrust on the housing sector, the interest payable on home loan for self-occupied houses was made eligible for tax deduction, if the acquisition/construction was completed within three years of loan procurement.

To give a further fillip to investment in the housing sector, the capital gains exemption under Section 54EC of Income Tax Act was extended to bonds issued by NHB.

In the last Budget, the finance minister had abolished section 37 (I) of the Income Tax Act, which allows the income-tax department pre-emptive purchase of immovable properties.

Also, the limit for deduction of interest paid on loans for acquisition of a residential house was increased to Rs 1.5 lakh, if the capital was borrowed after 1 April 1999. But for borrowings prior to that date, the limit for deduction of interest continues to be Rs 30,000.

Hence, this Budget, the real estate developers hope that the government removes this disparity and gives all loan borrowers the benefit of the enhanced limit of deductible interest of Rs 1.5 lakh.

In fact, the associations want the government to increase the limit to Rs 2.5 lakh. However, the Kelkar committee has recommended that the concession be removed altogether.

Another important demand is to allow depreciation for property, as even immovable property assets, like automobiles, have wear and tear over the years and reflects in capital values directly proportional to the age of the building.

In the forthcoming Budget of 2003-04, expectations are that Hudco's (Housing and Urban Development Corporation) equity will be increased so as to facilitate the construction of dwelling units in rural and economically backward regions.

It is expected that the funds will be utilised in building 400,000 dwelling units for the economically backward.

The Rakesh Mohan Committee had earlier recommended an enlargement in the scope of infrastructure by including sites, establishment of townships, water and sewerage system.

It has also recommended additional tax benefits for housing, infrastructure status and longer gestation periods.

In the last Budget, Ficci had advocated that the time period prescribed under Section 80 (I) B of the Income Tax Act to avail tax-deduction in case of residential units be extended from 2003 to 2010.

An amendment to the Rent Control Act was also suggested by CII to ensure flexibility to facilitate and promote housing activity.

Housing forms a very important sector for the growth of India's economy. A research study conducted by CRIS-INFAC, a Crisil subsidiary, predicts the housing sector to grow by 24 per cent in the next five years.

The growth in the current fiscal of 2002-03 is expected to be 33 per cent.

The incremental funds required by the housing finance markets will be to the tune of Rs 1,40,000 crore. The sector grew by 36 per cent in 2000-01 and 35 per cent in 2001-02.

As per the CRIS-INFAC report, housing loan disbursements, which was Rs 25,000 crore in 2001-02, is expected to grow at a compounded annual growth rate of 30 per cent in the next 2-3 years.

The report forecasts a disbursement of Rs 44,000 crore in 2006-07. Thanks to the priority sector status and tax rebates available, the housing sector is currently booming.

The report goes on to suggest that once the sector achieves critical mass, the Reserve Bank of India should review the priority sector status of housing finance.

Run-up to the Budget 2003

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