Real view: Will income tax rebate up to Rs 12 lakh lead to home buying?

The built environment of Indian real estate is trying best to set a narrative that the income tax exemption limit up to Rs 12 lakh would lead the salaried middle class to property market.

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The Union Finance Minister Nirmala Sitharaman has said this Income Tax exemption would put additional Rs 1 lakh crore in the hands of the Indians. A perception has hence gained ground that this additional cash would find its way into consumption, and hence fuel the demand in the Indian economy.

The stakeholders of the Indian real estate also wanted to join the party and hence this growing chorus that Indians will invest this additional cash in hand into the property market.

Ground reality

But the ground reality suggests otherwise. Facts speak for themselves:

• India's consumption basket is around Rs 116 lakh crore
• Infusion of Rs 1 lakh crore amounts to just additional 0.6% into this basket
• This is subject to the fact that this entire money would actually be put into consumption and not saving.

  A closer look at the Indian economy in general and the household economy in particular suggests otherwise:

• India's household debt is at an all-time high, and stands at 42.9% of GDP
• India's gross domestic saving rate is at a five-decade low to 5.2%
• 67% India is borrowing less than Rs 5,000
• 80% India is borrowing less than Rs 10,000
• 2.7 lakh crore is outstanding credit debt in India
• Loans against gold jewellery by banks have grown 50.4% in the past one year
• With rising stress in the household finance, non-performing assets (NPA) pertaining to gold loans increased over 21 per cent for

scheduled commercial banks (SCBs)

In the backdrop of such a bleak economic outlook has come a marginal relief for the Indian middle class that earns up to Rs 12 lakh per annum. The net savings with this Income Tax relief is about Rs 80,000 a year, that is Rs 6,666 a month.

Is this enough to buy a high value item like real estate?

Forget real estate, this amount is insufficient to even buy a car or gold jewellery. The question is whether the Indian household reeling under economic turbulence, rising debt and lesser savings venture out to buy property?

Won’t they put this money into savings or repay the debt?

There are more questions than what anyone could answer at this point of time.

In conclusion, this Union Budget has been a hit in terms of the PR & headlines management.

But it has largely failed to address the concerns of the Indian middle class.

To make them believe that the Income Tax exemption limit of Rs 12 lakh has qualified them to buy a house is only adding insult to their injury. China with more or less similar challenges and as large demography has weathered this challenge in a far more structured manner, after the Covid crisis.

The writer is CEO, Track2Realty

Affordability conundrum

• But what could be vouchsafed is the fact that the Indian middle class is not insulated against the hyper-inflation that nullifies any tax relief for all the practical purposes.
• The net household savings, if any, is also subject to the fact that the GST burden would not be increased for the Indians in the fiscal year.
• Then there is the issue of hyper-inflation of real estate prices.
• Someone in the Top Tier cities earning up to Rs 12 lakh per annum doesn’t qualify to buy a house.
• The thumb rule of affordability, that is 5 years of one’s gross income, makes only homes under Rs 60 lakh to be affordable for this set of Indians.
• Are houses in this price available in any of the major cities of India?
• Are real estate developers banking upon the dual-income households to buy real estate in urban India?
• The question here is how many Indians have this luxury of having both spouses working. The fact of the matter is that the hyperinflation of real estate is increasingly pushing out the large universe of salaried middle class out of the housing market.
• A clear reflection of investors parking their money into real estate at the cost of end-user buyers is the skyrocketing rental yields in recent times. In certain cities, most notably in Mumbai, rents in some of the key business localities is as high as the hotel room rents for the month in the city.

Reality check

• This is not a tax exemption or deduction but rebate, and only applicable to new Income Tax regime
• Total Income Tax filers in India are 7.5 crore
• Total Income Tax payers are just 1.5 crore
• Indians who are in the income limit of Rs 12 lakh are around 50 lakh in number
• So, the Union Budget 2025-26 has practically benefitted less than 50 lakh Indians, out of a total of around 150 crore citizens.