Budget wish list: Mortgage companies bat for tax holiday for affordable housing projects

The request by mortgage companies for the reintroduction of a 100% income tax exemption on profits from approved affordable housing projects is a significant development, highlighting the ongoing challenges and policy considerations in India's housing sector. This issue is deeply rooted in the government's ambitious goal of 'Housing for All' and its intersection with fiscal policy and economic growth.

**Background Context and What Happened:**

India, with its rapidly growing population and increasing urbanization, faces a persistent housing deficit, particularly in the affordable segment. To address this, the government launched the Pradhan Mantri Awas Yojana (PMAY) in June 2015, with the ambitious target of providing 'Housing for All by 2022'. PMAY had two main components: PMAY-Urban (PMAY-U) and PMAY-Rural (PMAY-G). To incentivize private sector participation in building affordable homes, the government introduced various measures. One crucial incentive was a 100% income tax exemption on profits derived from affordable housing projects approved between June 1, 2016, and March 31, 2022. This exemption was typically granted under Section 80-IBA of the Income Tax Act, 1961, for projects that met specific criteria regarding carpet area and project completion timelines. This incentive was instrumental in making affordable housing projects more attractive for developers by significantly improving their profitability. However, this beneficial scheme concluded in March 2022 and was not extended or reintroduced under the subsequent phases or iterations, which some refer to as PMAY 2.0 (though officially PMAY-U has been extended till December 2024 to complete already sanctioned houses). Mortgage companies, seeing the positive impact of this incentive on housing supply and demand, are now advocating for its reintroduction in the upcoming budget to further stimulate the affordable housing segment.

**Key Stakeholders Involved:**

Several key players are directly impacted and involved in this discussion. **Mortgage companies and Housing Finance Companies (HFCs)** are at the forefront of this demand. They finance both developers and individual homebuyers. For them, an increase in affordable housing supply means more loan disbursements, reduced lending risk (as projects become more viable), and overall business growth. **Real estate developers** are the direct beneficiaries of such tax exemptions. The 100% tax holiday significantly boosts their project profitability, encouraging them to undertake more affordable housing projects, which often have lower profit margins compared to luxury segments. The **Government of India**, particularly the Ministry of Finance and the Ministry of Housing and Urban Affairs, is the ultimate decision-maker. They must weigh the social benefits of increased affordable housing against the potential revenue loss from the tax exemption and the overall fiscal health of the nation. Finally, **homebuyers**, especially those from Economically Weaker Sections (EWS) and Lower Income Groups (LIG), are indirect beneficiaries. A higher supply of affordable homes, potentially at more competitive prices due to developer incentives, makes homeownership more accessible for them.

**Why This Matters for India:**

This policy discussion holds immense significance for India's economic and social development. Economically, the real estate sector is a significant contributor to India's GDP and a major employer. Stimulating affordable housing development through tax incentives can lead to a multiplier effect, boosting demand for allied industries like cement, steel, and other construction materials, and generating substantial employment. Socially, addressing the housing deficit is crucial for improving living standards, reducing urban slums, enhancing public health, and promoting financial inclusion. Access to safe and affordable housing is a fundamental aspect of human dignity and welfare. From a governance perspective, the reintroduction of such an incentive would signify the government's continued commitment to its 'Housing for All' vision and its responsiveness to industry demands for creating an enabling environment.

**Historical Context and Related Policies:**

India's journey towards providing housing for all has evolved over decades. Earlier schemes like the Indira Awas Yojana (IAY), launched in 1985, primarily focused on rural housing. PMAY represented a more comprehensive, multi-pronged approach, integrating aspects like credit-linked subsidies, in-situ slum redevelopment, and affordable housing in partnership. The Real Estate (Regulation and Development) Act, 2016 (RERA), brought much-needed transparency and accountability to the real estate sector, complementing initiatives like PMAY by protecting homebuyers' interests. The tax exemption under Section 80-IBA was a powerful fiscal tool, demonstrating the government's willingness to use tax policy to achieve social objectives.

**Constitutional Articles and Future Implications:**

While housing is not explicitly a fundamental right, the spirit of providing adequate housing aligns with the Directive Principles of State Policy (DPSP) enshrined in Part IV of the Indian Constitution. Articles like **Article 38** (State to secure a social order for the promotion of welfare of the people), **Article 39(b) and (c)** (distribution of material resources to subserve the common good, prevention of concentration of wealth), and **Article 47** (duty of the State to raise the level of nutrition and the standard of living and to improve public health) implicitly support state intervention for providing basic necessities like housing. The Supreme Court has also, in various judgments, linked the right to housing to the right to life under Article 21. If the tax holiday is reintroduced, it could significantly boost the supply of affordable housing, attract more private investment, potentially stabilize or reduce property prices in the affordable segment, and accelerate the progress towards meeting the housing demand. Conversely, if it is not reintroduced, developers might pivot to higher-margin projects, leading to a stagnation in affordable housing supply and making homeownership even more challenging for the target groups. The government's decision will reflect its fiscal priorities and its strategy for sustainable urban development in the coming years, especially as the PMAY-U mission's original deadline has passed and the focus shifts to completing existing projects and potentially formulating new long-term strategies.