New Delhi, Jul 6 (IANS): Affordable housing sector got a shot in the arm in the Union Budget presented on Friday with Central government paving the way for an enhanced interest deduction of up to Rs 3.5 lakh.

Union Finance Minister Nirmala Sitharaman presenting the Budget in the Parliament proposed to allow for an additional deduction of up to Rs 1.5 lakh for interest paid on loans borrowed up to 31 March 2020. This will be applicable for purchasing an affordable house valued up to Rs 45 lakh.

Till now, interest paid on housing loans is allowed as a deduction to the extent of Rs 2 lakh in respect of self-occupied property. The hike of Rs 1.5 lakh is over and above the already existing limit of Rs 2 lakh.

The union government has already provided a tax holiday on profits earned by developers of affordable housing in order to achieve the goal of 'Housing for All'.

In addition, the Budget also announced a proposal to bring about a model tenancy law that will do away with several prevalent archaic tenancy laws in order to redefine the relationship between the lesser and the lessee.

The Confederation of Real Estate Developers of India (CREDAI) termed the impetus given to the real estate sector in the budget as 'heartening'.

"The Budget has addressed our long-standing proposal to reform archaic rental laws and promote public housing on government land figure have been among the immediate policy agenda outlined. With regulation of Housing Finance Companies returned from the National Housing Board to the Reserve Bank of India, we hope that the latter would bring about much needed reforms for financing of real estate sector such as land, giving priority sector status to housing finance and lower cost of funding," said Manoj Gaur, Chairman, Affordable Housing Committee, CREDAI.

Further, in order to align the definition of affordable housing in the Income Tax Act with the Goods and Services Tax Act, the budget has proposed to increase the limit of carpet area from 30 sqm to 60 sqm in metropolitan regions. This limit will be increased from 60 sqm to 90 sqm in non-metropolitan regions.

"The budget reinforces affordable housing as one of the key priority areas of the government. We identify ourselves as a key partner in such initiatives along with other important schemes such as clean India which addresses the crucial issue of open defecation, especially in rural areas, as it will lay a strong foundation for a cleaner and healthier India," said Rajesh Mehra, Director & Promoter, Jaquar Group.

The ASSOCHAM termed the budget as consistent in its approach towards affordable housing with more focus on increasing the carpet area, re-defining income criteria and giving infrastructure status under the Pradhan Mantri Awas Yojana.

"With its commitment towards affordable housing, the government aims to increase the number of beneficiaries in terms of the credit-linked subsidy scheme," said Pradeep Aggarwal, Chairman, ASSOCHAM National Council on Real Estate, Housing and Urban Development.