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The finance ministry is planning to increase the tax exemption on rental income, which is 30 per cent at present, in the forthcoming Budget to boost rental housing.
While the limit up to which the exemption will be provided is still being debated, the ministry of urban development has proposed a 50 per cent exemption on rental income.
The rationale behind the suggestion is it will help attract more investments in the housing sector and help achieve the government's target of 'housing for all by 2010.'
Ministry officials say the fiscal incentives announced by the government for investments in housing are available only to those who take credit from banks and not to those who invest their savings directly.
The development becomes important in the wake of the recent Kelkar committee recommendations against income-tax exemptions for housing.
However, there is a debate going on against the removal of these exemptions since investments in construction and housing are said to have boosted the sagging economy.
Interestingly, this recommendation is also a part of the pre-Budget recommendations submitted by the Housing and Urban Development Corporation.
Hudco senior executive director P S Rana said the percentage of rented houses had decreased over a period of time because investments in rental housing were not encouraged by either fiscal or legal framework.
He said apart from reducing the shortage of housing for a large population, who cannot afford ownership, the promotion of rental housing would help stabilise real estate prices and check speculation, thereby make housing more affordable for the weaker sections.
In its pre-Budget recommendations, Hudco has said while high rent properties are easily available in metro cities and large towns, houses are still not available at affordable rents to low-income categories, which has led to the creation of slums.
Rana said it was because the regulatory regime was in favour of the tenant. Hudco has also suggested reforms in the regulatory framework to assure the landlord of the safety of his property and a decent assured return from the property in order to attract further investments.
Among other proposals, Hudco has suggested that investment in rental housing may be exempted from tax up to a reasonable amount, say up to Rs 500,000 per dwelling unit. It has also sought a similar property tax for both rented and self-occupied houses.