Raise home-loan interest tax deduction to ₹5 lakh, restore tax settlement panel: NAREDCO

New Delhi, India – Calling for urgent tax reforms to revive housing demand and restore buyer confidence, Parveen Jain, President of the National Real Estate Development Council (NAREDCO), said the apex realty body has recommended the Union Ministry of Finance to raise the home-loan interest deduction limit for owner-occupied houses from ₹2 lakh to at least ₹5 lakh, besides seeking the reinstatement of the Income-tax Settlement Commission to strengthen dispute resolution and improve investor sentiment in the sector.

On Thursday, while addressing the media in New Delhi, Jain made the remarks as NAREDCO—under the aegis of the Union Ministry of Housing and Urban Affairs—announced its Urban and Real Estate Development Conclave 2026, scheduled for February 13–14 at Yashobhoomi, New Delhi.

In a bid to boost demand in the real estate sector, the National Real Estate Development Council (NAREDCO) recommended to the Union Ministry of Finance a slew of measures, including raising the limit on interest deduction on home loans and reinstating the Income Tax Settlement Commission.

While quoting the NAREDCO recommendations to the Union Ministry of Finance, Jain said, “It is suggested that the deduction on account of interest payment available under Section 22 of I T Act 2025 should be made applicable from the year in which capital was borrowed as for principal u/s 80C and should be to the extent of full interest paid, at least in respect of one house,”.

“At least the limit of Rs 2 lakh should be raised to Rs 5 lakh or more for owner-occupied houses. Also, five years period for acquisition/completion from the year of borrowing should be dispensed with.”

“The real estate sector plays a critical role in India’s economic growth, employment generation and urban transformation. Rationalising taxation, especially on housing finance, will directly stimulate end-user demand, provide much-needed impetus to a sector grappling with a significant housing shortage, and offer relief to homebuyers impacted by project delays arising from cash flow constraints, while restoring overall buyer confidence,” said Parveen Jain, President, NAREDCO.

Currently, under Section 24(b) of the IT Act 1961 (Section 22 of the IT Act 2025), deduction on account of interest payment on housing loans is permissible to owners of rented dwelling units to the fullest extent. For owner-occupied houses, the limit is Rs 2 lakh. Further, the deduction is available after acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed.

NAREDCO has also suggested reinstating the Income-tax Settlement Commission. The commission established in 1976 to provide taxpayers a one-time opportunity to enter into a compromise and settlement arrangement with the Income-tax Authority to grant them relief from penalties and prosecution was discontinued with effect from February 1, 2021.

The apex housing sector body noted that the current dispute resolution scheme excludes certain cases, including those in which lower appellate authorities disposed of the appeal prior to the specified date (22 July 2024), but the time period for filing further appeals before higher appellate authorities remains open.

“Restoring and strengthening dispute resolution mechanisms like the Income-tax Settlement Commission is critical for fostering a transparent, investor-friendly environment in the real estate sector. Coupled with rationalised taxation policies, these reforms will catalyse sustainable growth, boost housing affordability, and accelerate India’s journey towards becoming a truly developed economy by 2047,” said Dr Niranjan Hiranandani, Chairman, NAREDCO.

Among other suggestions to boost the income of people and enterprises and thereby lift housing demand across the country, NAREDCO recommended that the tax rate, including surcharge and cess, for all non-corporate entities should be reduced to 25%. Further, the tax rates for individuals should be reduced to a maximum level of 30%, including surcharge and cess.

The recommendations gain significance as the real estate sector accounts for about 8% of India’s GDP and is the second-largest employer after agriculture, with about 19% of the country’s total workforce.

In order to promote affordable housing, the government, through the Finance Bill 2021, allowed a deduction under section 80 IBA of the IT Act 1961 ( Section 142 of the IT Act 2025) to such a rental housing project which is notified by the central government in the official gazette and fulfils such conditions as specified in the said notification.

In line with the government’s ‘Housing For All’ vision, NAREDCO has recommended removing the condition of notification by the central government. This, it said, would incentivise developers in the rental housing space.