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NITI Aayog has recommended a set of fiscal incentives to encourage the development and investment in affordable housing in India. The proposals include reinstating 100% tax exemption for developers undertaking approved projects, offering tax benefits on capital gains and rental income for investors via Real Estate Investment Trusts (REITs), and increasing loan limits under the Credit Risk Guarantee Fund Scheme for Low Income Housing to INR 40 lakh. The advisory body also suggested tax-free bonds for the National Housing Bank to support concessional funding and exemptions on land-use change charges, stamp duty, and registration fees for affordable housing units.
NITI Aayog has outlined a detailed framework to provide fiscal incentives aimed at accelerating the development of affordable housing and making it more accessible for buyers. The initiative comes at a time when India's urban population is expected to rise to around 50% or 850 million by 2050, up from 35% or 50 million in 2021, which will significantly increase demand for housing. Advertisement
The proposals include reinstating the provision of 100% tax exemption for developers involved in approved affordable housing projects. The Aayog noted that restoring Section 80 IBA, which existed between June 2016 and March 2022, would improve project viability and attract greater private sector participation. In addition, tax exemptions on capital gains and rental income were recommended for investors in affordable housing through REITs, aiming to reduce the cost of funds and encourage private investment.
Financing support is also part of the recommendations. The loan limit under the Credit Risk Guarantee Fund Scheme for Low Income Housing is proposed to be doubled to INR 40 lakh to adequately cover sales of affordable units. Moreover, the Aayog suggested that the National Housing Bank be allowed to issue tax-free bonds under Section 54EC of the Income Tax Act, with proceeds earmarked for providing concessional funding for projects targeting economically weaker sections (EWS) and low-income group (LIG) buyers.
The report also addressed regulatory costs. It proposed exempting charges for land-use changes for land designated for affordable housing, provided that at least 50% of the permissible floor area ratio (FAR) is utilized for construction of such units. Furthermore, it recommended waiving stamp duty and registration charges for houses under the Pradhan Mantri Awas Yojana Urban 2.0 and other affordable housing projects.
The Aayog highlighted that affordable housing in India faces challenges such as high land costs, limited unit supply, and systemic weaknesses in the financing ecosystem. These factors make it a high-risk and low-return segment for both developers and households. By implementing the proposed incentives, the government can make affordable housing projects more financially viable for builders while reducing costs for buyers, particularly at the lower end of the market.
Overall, the recommendations aim to enhance private sector participation, attract long-term investments, and support urban housing needs. They are designed to lower barriers in financing, reduce development costs, and improve affordability for buyers across income segments, ensuring that the growth in urban population can be met with adequate housing supply.
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