NAREDCO Proposes ₹5 Lakh Home Loan Interest Deduction Limit and Tax Reforms in Budget Recommendations

2 min read Updated on 01 Feb 2026, 08:25 AM

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NAREDCO has recommended increasing home loan interest deduction limits from ₹2 lakh to ₹5 lakh for owner-occupied houses and removing the five-year acquisition period requirement. The council also seeks reinstatement of the Income-tax Settlement Commission for improved dispute resolution and exemption from notional rental income tax for real estate entities. These proposals aim to stimulate demand in a sector that contributes 7-8 percent to India's GDP and employs 19 percent of the workforce.

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The National Real Estate Development Council (NAREDCO) has presented a comprehensive set of budget recommendations to the Union Ministry of Finance, focusing on tax reforms and policy changes aimed at stimulating growth in India's real estate sector. The proposals, submitted on January 22, address key challenges facing homebuyers and developers while seeking to boost overall market confidence.

Key Tax Reform Proposals

NAREDCO's primary recommendation centers on significantly enhancing home loan benefits for individual buyers. The council has proposed substantial changes to the existing tax structure that could provide considerable relief to homeowners.

Current Provision	Proposed Change
Interest Deduction Limit:	Increase from ₹2.00 lakh to ₹5.00 lakh
Property Type:	Owner-occupied houses
Acquisition Period:	Remove five-year completion requirement
Legal Framework:	Section 24(b) of IT Act 1961

Under the current Section 24(b) of IT Act 1961, homeowners with rented properties can claim full interest deduction on housing loans, while those living in their own homes face a ₹2.00 lakh annual limit. NAREDCO's proposal seeks to bridge this disparity by substantially raising the ceiling for owner-occupied properties.

Industry Leadership Perspectives

Parveen Jain, President of NAREDCO, emphasized that rationalizing taxation on housing finance will directly stimulate end-user demand. According to Jain, the proposed measures will provide essential support to a sector facing significant housing shortages while offering relief to homebuyers affected by project delays caused by cash flow constraints. The reforms are expected to restore overall buyer confidence in the real estate market.

Niranjan Hiranandani, Chairman of NAREDCO, highlighted the importance of strengthening dispute resolution mechanisms alongside tax reforms. Hiranandani stated that these combined measures will catalyze sustainable growth and boost housing affordability across the sector.

Settlement Commission Revival

A significant component of NAREDCO's recommendations involves reinstating the Income-tax Settlement Commission, which provided taxpayers opportunities for compromise and settlement arrangements with tax authorities. The commission, originally established in 1976, offered relief from penalties and prosecution but was discontinued effective February 1, 2021.

Commission Details	Information
Original Establishment:	1976
Discontinuation Date:	February 1, 2021
Primary Function:	Dispute resolution and settlement
Proposed Status:	Reinstatement recommended

Rental Housing Incentives

NAREDCO has also addressed the rental housing segment by recommending tax exemptions for real estate entities. The council proposes that businesses engaged in real estate development should be exempted from notional rental income tax burdens, recognizing the need to incentivize rental housing development in India.

Sector Significance

The recommendations gain particular importance considering the real estate sector's substantial contribution to India's economy. The industry represents approximately 7-8 percent of India's GDP and serves as the second-largest employer after agriculture, engaging about 19 percent of the country's total workforce. These statistics underscore the potential economic impact of the proposed policy changes on both the real estate sector and the broader Indian economy.