Budget 2026: NAREDCO recommends higher limit on income tax deductions for home loan interest

The National Real Estate Development Council (NAREDCO) has recommended a higher limit on income tax deductions for home loan interest and the reinstatement of the Income Tax Settlement Commission, as part of a series of measures proposed to the Union Ministry of Finance to revive housing demand and strengthen the real estate sector.

In its pre-Budget recommendations, the apex real estate body suggested raising the existing deduction limit for interest on home loans for self-occupied houses fromRs 2 lakh to at least Rs 5 lakh.

Advertisement

It also proposed that interest deductions should be allowed from the year in which capital is borrowed, rather than after project completion, and that the five-year completion condition be removed.

According to NAREDCO, rationalising housing-related taxation would directly boost end-user demand and restore buyer confidence, particularly in a market affected by project delays and cash flow challenges.

“The real estate sector plays a critical role in India’s economic growth, employment generation and urban transformation,” said Parveen Jain, President, NAREDCO, adding that enhanced tax relief would provide much-needed impetus to the sector.

The council also called for the revival of the Income Tax Settlement Commission, which was discontinued in February 2021. The commission had provided taxpayers a one-time mechanism to settle disputes and obtain relief from penalties and prosecution. NAREDCO noted that the current dispute resolution framework excludes several pending cases, creating uncertainty for businesses and investors.

“Restoring and strengthening dispute resolution mechanisms like the Income-tax Settlement Commission is critical for fostering a transparent, investor-friendly environment,” said Dr Niranjan Hiranandani, Chairman, NAREDCO, highlighting the need for reforms to support long-term, sustainable growth in the sector.

Among other recommendations, NAREDCO proposed reducing the effective tax rate for non-corporate entities to 25 per cent and capping individual tax rates at 30 per cent, including surcharge and cess, to enhance disposable income and stimulate housing demand.

The real estate sector currently contributes about 8 per cent to India’s GDP and is the second-largest employer after agriculture, accounting for nearly 19 per cent of the country’s workforce.

To further promote affordable and rental housing, NAREDCO also suggested removing the requirement of central government notification for tax benefits under Section 80-IBA, a move it said would incentivise developers to expand rental housing projects.

In this backdrop, NAREDCO announced the Urban and Real Estate Development Conclave 2026, scheduled for February 13–14 at Yashobhoomi, New Delhi.

The event will bring together policymakers, industry leaders and investors to deliberate on India’s urban and real estate roadmap, aligned with the vision of Viksit Bharat 2047.