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Economy

Budget 2014: Take Away Those Tax Sops For Housing

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Housing sops need to go. They take away investment from what is truly more productive – small and large businesses, local authorities and potentially even agriculture – in favour of real estate. We need to stop this practice immediately.

I’ve written about this. But I need to repeat it, for every budget. Let’s do the bullet points of the excessive sops for housing.

  • The Principal of a loan paid back to buy a house is tax exempt (upto 1L). In no other loan is the principal exempt – not even for education loans!
  • Losses from house property (after accounting for interest) can be offset by any other head of income, including salaries. You can’t offset losses from investing in companies, or buying debt funds with your salary. Unnecessary sop.
  • 30% of rent received is exempt from tax, as “maintenance”. Why not make house renting a business, where you have to get your expenses approved by the taxman like everyone else?
  • Housing is a priority sector for lending. Interest rates are lower there than for any other sort of loan (except maybe agriculture).
  • You can invest the capital gains on anything – including when you sold shares of a company – into a residential property, and you don’t have to pay capital gains tax. This is unfair – why can’t I get the same treatment if I reinvested gains back into other companies?

Another way to curb bubbles is to free land ownership and create a good real estate regulator. Real estate should be made a business like anything else and the above sops removed. We should increase housing taxes – they are pittance in most places – in order to provide better local facilities. Zoning should be enforced, though like the unfortunate residents of Campa Cola society, things will get ugly.

The industry needs no sops – it needs to be cut down to size.

If you wonder why real estate prices don’t come down, it’s because of these unnecessary tax and interest sops our government offers. It is time to rethink this concept, and make that money available for truly productive investment instead.

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