The Indian government has launched several affordable housing schemes to make homeownership more accessible and support the growth of the real estate sector. These initiatives provide cost-effective housing options for lower and middle-income groups, helping more people realize their dream of owning a home. In addition to affordable housing, the government offers significant tax benefits to homebuyers, making these schemes even more attractive.

These tax perks include deductions on home loan interest and principal repayments and exemptions on capital gains tax for reinvestments in affordable housing projects. First-time buyers can also enjoy additional deductions under specific sections, reducing their financial burden. Additionally, the reduced Goods and Services Tax (GST) rate on affordable housing projects lowers the overall cost for buyers. By understanding and utilizing these tax benefits, homebuyers can save money while investing in real estate, making affordable housing schemes a financially savvy option for many.

Government Schemes Promoting Affordable Housing

The Indian government has launched several schemes aimed at making homeownership easier for lower and middle-income groups. These schemes provide cost-effective housing solutions and offer financial benefits to people who want to buy homes. Here are some of the most popular schemes:

1. Pradhan Mantri Awas Yojana (PMAY)

PMAY is one of the largest programs focused on providing affordable housing to both urban and rural residents. Through this scheme, beneficiaries get an interest subsidy on home loans under the Credit Linked Subsidy Scheme (CLSS). Some of the key benefits include:

• An interest subsidy of up to ₹2.67 lakh for first-time homebuyers.
• Lower EMI (Equated Monthly Installment) payments, making homeownership more affordable.
• Tax deduction under Section 80EEA for interest paid on home loans, reducing the financial burden further.

2. Affordable Rental Housing Complexes (ARHCs)

The ARHC scheme aims to provide affordable rental housing for low-income groups, migrant workers, and others in urban areas. Though ARHCs do not offer direct tax benefits to buyers, developers investing in such projects are eligible for tax exemptions, which make rental housing more affordable for the general public.

3. Interest Subvention for Housing for Urban Poor

This initiative provides an interest subsidy on housing loans for economically weaker sections (EWS) and low-income groups (LIG). This subsidy helps in reducing the interest burden on home loans, making affordable housing even more attractive.

Tax Benefits Available for Affordable Housing

Tax incentives play a vital role in making homeownership more affordable for people in India. Here are some of the key tax benefits available for affordable housing buyers:

1. Tax Deduction on Home Loan Interest (Section 24(b))

Under Section 24(b), homebuyers can claim a deduction of up to ₹2 lakh per year on the interest paid on home loans. This deduction applies to both self-occupied and rented properties, making it one of the most attractive tax benefits for homebuyers.

2. Additional Deduction for First-Time Homebuyers (Section 80EEA)

First-time homebuyers who purchase affordable housing are eligible for an additional deduction of ₹1.5 lakh under Section 80EEA. This deduction is available for properties priced at ₹45 lakh or less. This benefit is over and above the ₹2 lakh deduction under Section 24(b), which means that first-time buyers can get a combined benefit of ₹3.5 lakh per year.

3. Deduction on Principal Repayment (Section 80C)

Under Section 80C, homebuyers can claim a deduction of up to ₹1.5 lakh for the principal repayment of their home loan. This includes payments made towards stamp duty and registration fees in the year the property is purchased, further increasing the tax savings.

4. Exemption on Capital Gains Tax (Section 54 & 54F)

If a taxpayer sells a residential property and reinvests the proceeds in an affordable housing project, they may be eligible for a capital gains tax exemption under Section 54. Similarly, Section 54F allows tax exemption for the sale of other capital assets when the proceeds are invested in affordable housing.

5. GST Benefits on Affordable Housing

The Goods and Services Tax (GST) on affordable housing projects is significantly lower at 1% for properties under PMAY, compared to 5% for other residential projects. This reduction in GST helps to lower the overall cost of purchasing a home, making affordable housing even more attractive.

Comparing Tax Benefits for Affordable and Regular Housing

Who Can Avail These Tax Benefits?

To take advantage of these tax perks, homebuyers need to meet the following conditions:

• The home loan should be taken from a recognized financial institution.
• The property must fall under the affordable housing segment, typically priced at ₹45 lakh or less.
• The buyer must be a first-time homeowner to claim benefits under Section 80EEA.
• The home loan should be for either self-occupied or rented properties, depending on certain conditions.

Challenges and Considerations for Affordable Housing Buyers

While government schemes and tax benefits offer substantial financial relief, there are some challenges homebuyers should be aware of before investing in affordable housing:

• Location Constraints: Many affordable housing projects are located on the outskirts of major cities, which may lead to longer commuting times and limited access to local amenities.
• Quality of Construction: Some affordable housing projects may compromise on the quality of construction and the availability of amenities.
• Delays in Possession: It is essential to verify the developers' track record to avoid delays in receiving possession of the property.
• Understanding Loan Terms: Buyers should carefully review home loan terms, including interest rates, repayment tenures, and any hidden charges that may affect the overall cost of the loan.

Conclusion

Affordable housing schemes in India offer financial assistance and significant tax savings to homebuyers. Deductions under Sections 24(b), 80C, and 80EEA, along with reduced GST rates, make homeownership more affordable. The tax benefits can help reduce the overall cost of buying a home, especially for first-time buyers and middle-income families.

Before purchasing a property under an affordable housing scheme, buyers should thoroughly research, compare loan options, and confirm their eligibility for government subsidies. With the right planning, homeownership can become more attainable and financially beneficial.