Budget 2024: More affordable housing, lowered rent TDS — here’s what will change for the housing sector this year

As Finance Minister Nirmala Sitharaman unveiled the Union Budget 2024, all eyes were on the housing sector, which has been a focal point for both developers and homebuyers. Expectations were high for increased deduction limits on home loan interest repayments, higher principal repayment deductions, and more robust incentives for first-time homebuyers.

Last year's budget focused on increasing affordable housing through the Pradhan Mantri Awas Yojana (PMAY), with a significant allocation to achieve the goal of "Housing for All." The real estate sector had previously seen incentives for developers building affordable housing, such as tax holidays under Section 80IBA and increased allocation through the SWAMIH fund to improve liquidity for stressed projects.

Major announcements in Budget 2024

As per FM Sitharaman's 2024 Budget announcements, PMAY is set to add an additional 3 crore affordable housing — houses priced under Rs 40 lakh — in rural and urban sections of India. This will be accomplished with Rs 10 lakh crores, which includes assistance of Rs 2.2 lakh crores over the next five years. A provision of interest subsidy to facilitate loans at affordable rates is also envisaged, the FM noted in her speech.

“This is certainly pertinent – the affordable homes category has been seeing a decline in overall sales since the pandemic, to approximately 19% in H1 2024 from over 38% in the period before the pandemic in 2019,” notes Anuj Puri, Chairman of ANAROCK Group. “Consequently, this segment’s percentage share of the total housing supply in the top 7 cities also fell to 18% in H1 2024 from nearly 40% in 2019. Any boost to this vital segment is therefore welcome.”

As per December 2023 reports, 65% of houses under PMAY-Urban had been completed and delivered to beneficiaries since the scheme was introduced in 2015. This amounts to over 78 lakh pucca houses out of the 1.18 crore sanctioned. The new addition to PMAY will thus attempt to more than triple the quadruple the number.

Tax reliefs and transparent rental policies

This year, the sector expected further tax relief measures for homebuyers and developers. Key demands are aplenty, including increasing the deduction limit for home loan interest repayment from the current Rs 2 lakhs to Rs 3-4 lakhs for self-occupied properties, reintroducing tax exemptions for first-time homebuyers, standardising the definition of "Affordable Housing", and reducing GST on construction materials like cement and steel. However, there has been only disappointments on this front based on the announcements so far.

However, in terms of the tax changes, the Budget has proposed a massive reduction in rental matters for the individual. While the current tax deducted at source (TDS) for Payment of rent by individuals or HUF under Section 194-IB stands at 5%, the new budget is set to bring this down to 2%, effective from October 1, 2024.
Further, the government has promised to enable and implement policies and regulations for efficient and transparent rental housing markets with enhanced availability.

Additional initiatives

Further, dormitory-style accommodations have also been announced for industrial workers in public-private partnership mode with Viability Gap Funding (VGF) support and commitment from anchor industries. VGF is a scheme that helps support important infrastructure projects that may not be financially viable, through grants that total up to 20% of the total project cost.

The FM also announced that policies and regulations for efficient and transparent rental housing markets with enhanced availability will be put in place, to ease the rental and home-owning process.
Markets are optimistic in the aftermath of these announcements, with many housing finance companies recording healthy gains since the speech. Puri notes that the renewed focus on rural and urban job creation, if effective, may provide some boost to affordable housing in even tier 2 and 3 cities.

“The Finance Minister's allocation of ₹10 lakh crore to help 1 crore poor middle-class families buy houses will boost the demand for residential properties,” remarks Divyam Mour, Research Analyst at Samco Securities. ”This funding, along with interest subsidies, will greatly benefit real estate developers like DLF, Macrotech Developers, NBCC, and Sunteck Realty, as well as housing finance companies focused on the lower and middle classes, such as Aadhar Housing Finance, Aptus Value Housing Finance, and Aavas Financiers.”