by THO
Budget 2025 exempts income up to ₹12 lakh from taxation under the new regime. This makes homeownership more accessible for those in this income bracket and encourages investment in the housing sector. However, there will be no change for those earning an annual income of more than ₹12 lakh annually.
Let us take the example of Prithvi Singh (name changed), who earns a salary of ₹12 lakh per annum. He has been putting away buying a house in the last few years because the rising interest rates have hit him hard. Singh has been waiting for RBI to cut interest rates, but that has not happened yet.
Budget 2025 brings good news for him because he will make substantial tax savings if he opts for the new tax regime. “People with income up to ₹12 lakh per year would be left with ₹80,000 extra in their hand every year,” says Abhishek Kumar, Securities and Exchange Board of India (Sebi) Registered Investment Advisor (RIA) and Founder and Chief Investment Advisor, SahajMoney, a financial planning firm.
Assuming that Singh saves the entire ₹80,000, he can pay an additional EMI of about ₹6,600 monthly, allowing him to afford a higher-priced house.
Experts say that one’s EMI outgo should not exceed 40 per cent of one’s income. Let us assume that his EMI was ₹40,000 earlier, and the interest rate was 8.75 per cent. He could buy a property worth approximately ₹45-50 lakh. With an EMI of ₹46,000, Singh can buy a property worth ₹52 -58 lakh.
Atul Monga, CEO and co-founder of BASIC Home Loan, a Fintech start-up, says, “Raising the tax exemption threshold and offering higher tax rebates will enhance the surplus income of the middle class, potentially creating more opportunities for homebuyers to invest.”
Relief for Middle-Class Home Buyers
Between May 2022 and February 2023, the RBI hiked the repo rate by 2 bps from 4 to 6.5 per cent, leading to increased interest rates on home loans. This put pressure on the middle class, who found the high EMIs behind their budget. After that, the RBI kept the interest rate constant for 11 consecutive monetary policy meetings, and thus, homebuyers had nothing to cheer about.
In fact, the real estate sector has been witnessing a slowdown in sales, especially in the affordable and mid-income segments lately. According to a report by online subscription-based real estate data and analytics platform PropEquity, available units in houses priced ₹1 crore and below declined from 3,10,216 in 2022 to 1,98,926 in 2024.
“The issue of reducing private consumption was looming large, and it could have wider ramifications if not addressed early. With that, the government focused on providing disposable income and boosting consumption. The highlight of this budget is clearly the reduction in the income tax burden on the middle-class which will bear no tax up to an income of ₹12 lakh, fundamentally increasing disposable incomes and boosting consumption,” says Shishir Baijal, Chairman and Managing Director, Knight Frank India.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
