The built environment of Indian real estate is trying best to set a narrative that the Income Tax exemption limit up to INR 12 lakh would lead the salaried middle class to property market. It’s hence time for a reality check:
This is not a tax exemption or deduction but rebate, and only applicable to new Income Tax regime
Total Income Tax filers in India are 7.5 crore
Total Income Tax payers are just 1.5 crore
Indians who are in the income limit of INR 12 lakh are around 50 lakhs in number
The Union Budget 2025-26 has practically benefitted less than 50 lakhs Indians, out of a total of around 150 crore citizens. The Union Finance Minister Nirmala Sitharaman has said that this Income Tax exemption would put additional INR 1 lakh crore in the hands of the Indians. A perception has hence gained ground that this additional cash would find its way into consumption, and hence fuel the demand in the Indian economy. The stakeholders of the Indian real estate also wanted to join the party and hence this growing chorus that Indians will invest this additional cash in hand into the property market.
But the ground realities suggest otherwise. Facts speak for themselves:
India’s consumption basket is around INR 116 lakh crore
Infusion of INR 1 lakh crore amounts to just additional 0.6% into this basket
This is subject to the fact that this entire money would actually be put into consumption and not saving
A closer look at the Indian economy in general and the household economy in particular suggests otherwise:
India’s household debt is at an all-time high, and stands at 42.9% of GDP
India’s gross domestic saving rate is at a five-decade low to 5.2%
67% India is borrowing less than INR 5,000
80% India is borrowing less than INR 10,000
2.7 lakh crore is outstanding credit debt in India
Loans against gold jewellery by banks have grown 50.4% in the last one year
With rising stress in the household finance, non-performing assets (NPA) pertaining to gold loans increased over 21 per cent for scheduled commercial banks (SCBs)
In the backdrop of such a bleak economic outlook has come a marginal relief for the Indian middle class that earns up to INR 12 lakh per annum. The net savings with this Income Tax relief is about INR 80,000 a year, that is INR 6,666 a month. Is this enough for consumption? Is this enough to buy a high value item like real estate? Forget real estate, this amount is insufficient to even buy a car or gold jewellery. The question is whether the Indian household reeling under economic turbulence, rising debt and lesser savings venture out to buy property? Won’t they put this money into savings or repay the debt?
There are more questions than what anyone could answer at this point of time. But what could be vouchsafed is the fact that the Indian middle class is not insulated against the hyper-inflation that nullifies any tax relief for all the practical purposes. The net household savings, if any, is also subject to the fact that the GST burden would not be increased for the Indians in the fiscal year.
Then there is the issue of hyper-inflation of real estate prices. Someone in the Top Tier cities earning up to INR 12 lakh per annum doesn’t qualify to buy a house. The thumb rule of affordability, that is 5 years of one’s gross income, makes only homes under INR 60 lakh to be affordable for this set of Indians. Are houses in this price available in any of the major cities of India?
Are real estate developers banking upon the dual-income households to buy real estate in urban India? The question here is how many Indians have this luxury of having both spouses working. The fact of the matter is that the hyperinflation of real estate is increasingly pushing out the large universe of salaried middle class out of the housing market. A clear reflection of investors parking their money into real estate at the cost of end-user buyers is the skyrocketing rental yields in recent times. In certain cities, most notably in Mumbai, rents in some of the key business localities is as high as the hotel room rents for the month in the city.
In conclusion, this Union Budget has been a hit in terms of the PR & headlines management. But it has largely failed to address the concerns of the Indian middle class reeling under hyper-inflation, lower wage growth, rising property prices, depleting domestic savings and increasing household debt. To make them believe that the Income Tax exemption limit of INR 12 lakhs has qualified them to buy a house is only adding insult to their injury. China with more or less similar challenges and as large demography has weathered this challenge in a far more structured manner, after the Covid crisis. The question is whether we are ready to learn the art of managing economy from the neighboring country with bigger economy, GDP and Per Capita Income?
Ravi Sinha
X : RaviTrack2Media
Ravi Sinha is a journalist with over two decades of cross-discipline media exposure. He is the CEO of real estate thinktank group Track2Realty. He has been writing extensively on the real estate sector for more than a decade now. Evaluation of real estate brand performance is his core domain expertise and he has immense insight into consumers’ psychograph. He has conceptualised Track2Realty BrandXReport as India’s 1st & only objective & non-paid brand rating journal that is industry-accepted benchmark of brand equity & ranking of the Indian real estate companies.
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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