Rationalise tax rates for individuals to boost consumption: Keki Mistry

Are you expecting some sort of a decisive or a game changing move on this front? What is on your wishlist?
First of all, the real estate sector has a multiplier effect on the economy because it supports a whole host of other sectors like cement, steel, paint and power which are all very big sectors in the economy. Also, the real estate sector directly creates many jobs and therefore there’s the need to support the sector. Now in real estate, there are two or three things; one is affordable housing to start with.

Now in the affordable housing segment, the government has done a very commendable job and I think they have done a fantastic job. They have this scheme called the credit linked subsidy scheme. Now if some modifications are made in this credit linked subsidy scheme, the scope of coverage will be a lot wider. For example, if the eligibility criteria for an individual to avail of this benefit is Rs 6 lakh, the Rs 6 lakh was fixed in 2015.

Over a period of the last seven years, income levels have gone up and therefore it would be very appropriate if that Rs 6 lakh limit was increased to say Rs 8 or 9 lakh. Secondly, the CLSA scheme comes to an end in March of 2022 and given the success that it has had over these last so many years and given the fact that it has enabled so many lower income people to be able to buy a house, which otherwise they would not have been able to.

My recommendation would be that this should be extended by another period of one year. So there are these kinds of modifications that are required, more locations need to be covered under the CLSA schemes and this would certainly be one of the things. As far as housing per se is concerned, the interest benefit, the interest on a housing loan today is tax deductible to the extent of Rs 2 lakh. Now, this limit of Rs 2 lakh has been there for a while. That Rs 2 lakh limit needs to be increased and then it should be linked to inflation, so that automatically every year that limit keeps increasing to keep pace with inflation. These would be my broad asks.

Plus, of course, some modification if possible in the GST law because GST is one of the impediments to people buying under construction properties. If GST rates were either lowered or removed for under construction properties, it would go a long way in creating a further boost in the real estate market.

The last bit would be to encourage rental housing. So, the interest that is paid by a customer who is given a house on rent is today deductible only to the extent of Rs 200,000. That is an inappropriate limit. An inappropriate deduction in view of the fact that the entire income that is received on renting the property is taxed and so if the income is subject to some standard deduction, if the income is taxed it would be appropriate if the interest paid which is actually paid for buying that property is also made deductible without limit. These would be the asks.

One thing which has been helping the real estate demand has been the revival on the back of lower rates as well as the stamp duty cuts. Can we expect additional concessional rates in terms of the home loans that will fuel demand going forward?
The rate cut is unlikely. Personally speaking, because the rate cut is a function of the interest rates in the economy and that is not something which is dictated by the Budget or the finance bill.

But if the interest payable on a housing loan – the limit of deduction which is available today is capped at Rs 200,000 – if that limit was increased, then it would go a long way in encouraging more people to come forward and buy a house.

The government has continued to lay focus on job creation, the agriculture sector and even industrial expansion. What would be some of the two or three key focus areas that the government needs to highlight?
I think the government’s focus should be on earlier job creation. Job creation is extremely important in an economy like ours. Secondly, if some encouragement given to the financial sector because the financial sector is the backbone of the economy and in any kind of financial service product that we see today, the penetration levels are extremely low including in mortgages.

The mortgage to GDP ratio in India is about 10 or 11%. If one looks at retail credit to GDP, credit card penetration, almost any other parameter – the penetration levels are low. It includes life insurance premiums to GDP, general insurance premiums to GDP and so on and so forth. So if there is some encouragement given to the financial sector, then that would go a long way in giving a boost to the rest of the economy.

We have already talked about job creation and housing. That would be the second. And the third thing I would suggest is some measures to support consumption. Consumption in India is extremely important because ours is largely a consumption driven economy; 60% of our economy is consumption driven.

So if we can encourage consumption, if more people have the ability and the willingness to go and spend money, then that spending of money will result in manufacturers having to produce more to satisfy that demand and it would also mean that if manufacturers produce more, they have to hire more people and more jobs get created. As more jobs get created, people have more income and as they have more income, they will go and spend money.

My suggestion would be that some rationalisation in the tax rates for individuals would help a lot. Corporate tax rates were lowered three years ago or so and we have seen a sharp increase in the level of corporate tax collection but individual tax rates actually have gone up over that period of time. So some rationalisation of those rates would help.