e As per Section 80 C (read with Section 80 CCE) of the Income Tax Act, 1961, principal repayments of up to =
150,000 on a home loan are allowed as a deduction from gross total income; and

e As per Section 80 EE, an additional deduction in respect of interest of = 50,000 per annum has been provided
exclusively for first-time home buyers, given the property value is up to 2 5 million and the loan is up to 2 3.5 million.

Interest subvention scheme to boost loan disbursements

Under the Housing for All scheme, in order to expand institutional credit flow to the urban population, the government
introduced the Credit Linked Subsidy Scheme (CLSS) as a demand-side intervention. In May 2020, the government
extended the CLSS component till March 2021. This move will help in supporting the loan disbursements over the coming
fiscal.

The CLSS will be provided on home loans for eligible urban population to acquire and construct houses. For loans of up
to 0.6 million for EWS and LIG beneficiaries, the interest subsidy has been fixed at 6.5% for eligible borrowers buying
a home of up to 60 square meter carpet area. In February 2017, the CLSS was extended to include MIG households with
incomes in the range of % 0.6-1.8 million per annum.

Government schemes

e Under the PMAY-G, approximately 10 million houses have been constructed as of May 15, 2020. The Government
has set up a construction target of 19.5 million houses up to Fiscal 2022 under Phase II. Further, the scheme relies
heavily on extra budgetary resources raised through the NABARD bonds. The flow of funds for the second phase
will be key with an investment requirement of 2 1.6 trillion. Only % 360 billion has been provided till date with almost
% 3 trillion additional needs over next two years to achieve PMAY-G targets.

e Under PMAY-U, out of the estimated 11 million houses to be constructed over seven years (Fiscal 2016 to Fiscal
2022), 10.5 million houses have been sanctioned as of April 2020. Of these, while 3.35 million houses have been
constructed. Like PMAY-G, PMAY-U also relies heavily on extra budgetary resources raised through Housing and
Urban Development Corporation Limited bonds. The flow of funds from the central Government remains significant
for the scheme’s success, as it needs approximately 1.65 trillion over the life of the scheme an average of = 150,000
per house. Currently, only 42% of this amount, i.e., < 695 billion, has been released until now and accordingly, central
Government needs approximately = 954 billion to achieve PMAY-U completion.

Ease of access to finance and rise in finance penetration to drive the housing industry

 

Growth of the housing sector in India also depends on the availability of finance and the cost of obtaining such financing.
The availability of finance can broadly be evaluated through finance penetration. The increase in housing demand over
the past few years was primarily due to easy availability of finance along with low interest rates. In addition, the presence
of a large number of financiers across categories contributed to the growth in housing demand. Increase in finance
penetration is also expected to support the housing industry’s growth. Rising demand for housing from Tier II and Tier
III cities, and a subsequent surge in construction activity have increased the focus of financiers on these geographies.
Consequently, finance penetration in urban areas is estimated to have increased to 44.8% in Fiscal 2019, from an estimated
39% in Fiscal 2012. With the increase in the affordable housing and rising competition in mid-ticket size loans, finance
penetration is expected to increase by more than 45% in urban areas over the next two fiscal years.

Impact of GST

A significant reduction in GST from 8% to 1% for under-construction affordable housing projects (effective rate after
deducting one-third towards land cost) and from 12% to 5% for other under-construction housing projects (effective rate
after deducting one-third for land cost), is expected to increase end user demand. In addition, the GST Council adopted a
new definition for affordable housing, which is now described as a residential house/ flat with a carpet area of up to 90
square metres in non-metropolitan cities/towns, and 60 square metres in a metro, and having value of up to 2 4.5 million.
Metros identified are Bengaluru, Chennai, National Capital Region of Delhi (limited to New Delhi, Noida, Greater Noida,
Ghaziabad, Gurgaon and Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region). Further,
approximately 40% to 45% of the on-going supply in these six cities fall below the % 4.5 million ticket size, so the effective
GST rate of 1% should increase the demand. Over the past two years, preference for completed projects has been clearly
visible because of the additional GST burden and execution risks associated with under-construction properties. With the
RERA framework evolving and GST reduced, end-user confidence towards under-construction properties is expected to
improve will also gradually improve volume growth in the housing segment.

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