NEW DELHI | Sidhartha & Rajeev Deshpande | TNN | Jan 15, 2017, 01.16 AM IST | Times of India

The government is looking to provide higher tax incentives on home loans to boost demand and prop up the faltering realty sector that has been further hit by demonetisation.

Sources indicated some concessions may be offered in the Union Budget to increase the tax benefit on payment of interest beyond the annual Rs 2 lakh, a measure that is expected to provide a fillip to the employment-intensive segment and please taxpayers.

The move to enhance the tax concessions comes soon after the Centre prodded banks to pare interest rates, including on home loans, in the wake of massive inflow of deposits. The government is, however, yet to make up its mind on reworking tax slabs.

Sources said the extent of increase on home loans had not been worked out. In the past, too, the government has been favourable towards demands from the construction sector given it is employment generating and helps boost demand for cement, steel and other construction material.

While there is an expectation that the Modi government could reach out to the middle class through tax concessions, there is a view in the government that expected gains from demonetisation will flow only from the next financial year and the Centre may have to loosen its purse strings to boost public spending.

Companies which were already holding back on capacity addition due to high debt and low demand, are unlikely to rush in with fresh investment over the next few quarters given that consumers are holding back purchases post demonetisation. The real estate sector, affected by a spate of delays and low demand in the wake of high interest rates, has been particularly hit by demonetisation.

A recent study by consulting firm Knight Frank estimates a 44% fall in demand, resulting in revenue loss of Rs 22,600 crore since November 8 when Rs 500 and Rs 1,000 notes were scrapped.

Source: https://goo.gl/JMq4Y3