In a move to boost the housing industry, the Ministry of Housing and Urban Development, has proposed the finance minister Pranab Mukherjee, to consider increase in the income-tax exemption available for the interest payment on the home loans of up to Rs 2.5 lakh.

As per the current norms, repayment of principal loan amount is considered as a part of investments and is eligible for tax-benefits under Section 80(C) of the Income-Tax Act, with a ceiling of Rs 1 lakh.

The existing provisions provide income-tax exemptions on the interest payment of up to Rs 1.5 lakh per annum. This limit is considered to be in inadequate when a borrower thinks of buying a house in big city.

The existing guidelines enable the borrowers to draw the tax benefits only after the completion of construction of the house, which takes nearly 2 to 3 years in case of builder flats. Depriving the borrowers of tax benefits during this period, increases financial stress.

The industry has been asking the government to reduce the lending rates, increase the tax exemption limits and also allow the tax-benefits along with the start of repayment. It is expected that these measure would relive the borrowers and help in inducing demand.

It has been in news that the annual budget will focus on housing and infrastructure, rural economy and education. In a statement, made by M D Mallya, chairman and managing director of Bank of Baroda, "We expect the main focus to be on infrastructure, rural economy and education in the Union Budget."

It is likely that the government has to forgo a significantly large sum if the exemption is put in place.