The industry was looking forward to being accorded status as aninfrastructure industry with access to plenty of cheap funds, not only fromthe banking sector, but also the secondary debt market. However, the budgetdoes not include any such proposal.

For sustained survival, the housing industry needs access to low-cost funds.While the manufacturing industry is able to repay loans over a period of7-10 years, the average time required for repayment of housing loans is15-20 years. Housing finance companies in the US offer loans with arepayment period of 30 years. These companies can offer such loans only ifthey themselves have access to long-term finances at low rates of interest.However, availability of cheaper funds cannot be ensured in a regulatedmarket unless the cost of acquisition of funds itself comes down. This ispossible only if the level of non-performing assets of housing financecompanies can be drastically reduced and a secondary market for debtinstruments created. This requires introduction of stringent foreclosurelaws so that housing finance companies are able to take possession of loandefaulters' properties.

Once this can be ensured, the cost of management of funds will come down forthe housing finance companies and they will be able to offer cheaper financeto their customers.

The industry wish list, which was communicated to the finance ministerthrough the chairman of the National Housing Bank, contained the followingproposals:

a) The scope of definition of infrastructure under income tax be widened toinclude lower income group housing and also houses financed under the GoldenJubilee Rural Housing Scheme (GJRHS). To meet long-term financing needs forEWS/LIG housing units, the corpus available under the GJRHS be transferredto a special reserve.

b) Keeping in view the RBI revision of eligible ceiling for priority sectorloans from Rs 5 lakh to Rs 10 lakh, the ceiling on admissible deduction onaccount of interest paid on housing loans be increased from Rs 75,000 to Rs1,50,000 per assessment year.

c) The validity date of March 31, 2000, for assessees to avail the benefitof interest paid on housing loans be extended to encourage more people toacquire their own homes.

d) Housing finance be granted infrastructure industry status to enable HFCsto avail of tax benefits under Sections 10 and 23(G) of the Income Tax Act.e) The principal amount of a loan repaid in any assessment year qualify fora tax rebate of 20 per cent with an upper ceiling of Rs 60,000, independentof the relief available on deposits in other schemes listed under Section 88of the Income Tax Act.

f) PF and pension funds/trusts/insurance companies and funds of othergovernment agencies consider non-convertible debentures/deposits of HFCs aseligible instruments for investment.

g) All approved HFCs be permitted to accept deposits under Sections 54EA and54EB of the Income Tax Act, as this would provide them the vital access tolong-term financial resources.

However, the finance minister has proposed some minor changes for individualtax-payers with no new incentives for either real estate developers orhousing finance companies. These changes are more in the shape of technicalcorrections and no consequential benefits are likely to accrue to thetax-payers. Despite the snowballing gap between supply and demand fordwelling units, the market will remain sluggish unless the industry isencouraged to upgrade their technology and generate larger volumes at lowercost by using alternate cheaper materials and technologies.

The specific changes proposed in the Finance Bill are:

Under Section 88 of the Income Tax Act, the admissible sub-ceilingpertaining to repayment of a principal housing loan is proposed to beincreased from Rs 10,000 to Rs 20,000 per assessment year. However, theoverall ceiling under this section remains unaltered at Rs 60,000.The tax deduction permitted on account of interest paid on housing loansunder Section 24 of the Income Tax Act remains unaltered at Rs 75,000 duringany assessment year. The period during which the construction of suchdwelling units has to be completed has been extended from March 31, 2001, toMarch 31, 2003.

Similarly, there are structural changes with regard to availing of theexemption from payment of capital gains tax by undertaking investments innotified securities declared as eligible investments under the newlyproposed Section 54EC of the IT Act.

This newly inserted section will supersede the earlier Sections 54EA and54EB of the Act. It provides that only investments in bonds issued by NABARDand the Highway Authority of India, and floated on or after April 1, 2000,with a maturity period of five years, shall entitle the assessee to claimrelief from payment of capital gains tax.

The reliefs previously available under Sections 54EA and 54EB shall not beavailable to income tax assesses after March 31, 2000. The finance ministerhas also clarified that henceforth, even though the assessee may already bein possession of a residential house, he would be able to avail of exemptionfrom payment of capital gains tax under Section 54F of the IT Act, providedhe has invested his long-term capital gains in the acquisition of anotherresidential property within the time period stipulated under Section 139.