The interim budget to be announced on Monday could bring some cheer to consumers and investors, as acting finance minister Pranab Mukherjee may use the opportunity to announce one more stimulus package in the form of targeted tax incentives.
Sources in the government told TOI that Mukherjee may announce tax sops aimed at boosting the housing sector, which has been identified as a potential driver for the economy and job creation during a slowdown.
Normally, propriety would demand that an outgoing government not announce any major policy decisions or changes in the tax structure in an interim budget. But, given the global economic crisis and its impact on India, the UPA has the opportunity to argue that it cannot remain a silent spectator and allow things to drift for months till the new government can assume office.
One populist measure that is being seriously considered to kick start the realty sector -- which could help revive a number of related sectors like steel, cement and electric appliances -- is an increase in the deduction allowed for payments on housing loans .
As things stand, taxpayers are allowed to deduct up to Rs 1.5 lakh of interest paid on home loans from their taxable income. This limit could be raised to Rs 2 lakh. This, if it happens, will enable those who have bought a house for self-use to save up to Rs 68,000 in tax. At present, the maximum anyone can save through this deduction is Rs 51,000.
Another possible sop for the housing sector could be reintroduction of Sec 80IA, under which corporates building dwelling units of less than 1,000 sq ft area were exempted from tax on the profits from these units. This, the sources said, should nudge developers towards constructing smaller houses, making houses more affordable for the lower segment of the market.
The government could also announce some tax sops in the consumer durables and automobile sector. While an across-the-board 4% cut in excise in December 2008 makes any drastic concessions difficult, a senior official hinted that excise duty on big cars with engine capacities of 1200 cc or more in petrol may be reduced to 16% from the existing 20%.
Other indirect tax cuts may also be in the offing, given the twin objectives of bringing down prices to revive demand and protecting jobs, which is essential with elections round the corner.