Budget 2026 wishlist: Real estate sector eyes higher affordable housing threshold, stronger CLSS support
Budget 2026: The real estate sector is seeking a higher affordable housing cap, stronger support for CLSS under PMAY-U 2.0, and sops to boost rental housing
Affordable housing is at the top of the real estate sector’s wishlist ahead of Union Budget 2026, with industry players urging the government to revise the ₹45-lakh price cap, arguing that it no longer reflects urban market realities. Developers say it is virtually impossible to build a modest two-bedroom home with basic amenities within this limit in major metros, and have called for city-specific thresholds while retaining the size norms and intent of the original affordable housing mandate.
The sector is also seeking stronger support for the Credit-Linked Subsidy Scheme (CLSS) under PMAY-U 2.0 to further boost end-user demand.
The price cap for 'affordable housing' remains stuck at ₹45 lakh, a threshold set in 2017 that bears no relation to 2025 construction costs and land prices. In Mumbai, a 600-square-foot apartment in peripheral areas now costs between ₹60-75 lakh. In Pune, similar units command ₹50-65 lakh. In Bengaluru and the Delhi-NCR region, the figures are equally disconnected from policy definitions.
Experts point out that real estate developers who attempt to build within this ₹ 45 lakh price cap are locked out of critical tax benefits. The tax holiday under Section 80-IBA, which once spurred the launch of affordable housing, expired in 2021 and has not been revived. Without these incentives, profitability becomes mathematically impossible, they said.
Redefine affordability to reflect urban ground realities.
The ₹ 45-lakh price cap for affordable housing is economically divorced from the ground realities of urban India. These thresholds should be raised substantially and differentiated by city, they said.
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A 60-70 square meter apartment in a peripheral zone is fundamentally different from a premium offering, even if its nominal price has risen to ₹75 lakh. Raising the price cap to ₹75-85 lakh, while maintaining the carpet area norms at 60-90 square meters, would increase the number of homes that can be built from approximately 18% of current launches to more than 40%. This one policy change can potentially have the effect of immediately attracting more developers and freeing up a lot of supply that has been held back till now, explains Anuj Puri, chairman, ANAROCK Group.
Restart the Credit-Linked Subsidy Scheme
The Credit-Linked Subsidy Scheme (CLSS) was revived and reintroduced as part of the revamped Pradhan Mantri Awas Yojana – Urban 2.0 (PMAY-U 2.0) in Union Budget 2024, when the FM announced its relaunch with updated benefits and eligibility criteria. This is an important policy tool that has been underutilised in recent years. The Union Budget 2025 reintroduced part of this plan, offering interest subsidies of up to ₹1.80 lakh to eligible beneficiaries in the EWS, LIG, and certain MIG categories.
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Budget 2026 needs to widen and strengthen this support. The original CLSS framework, which was discontinued in 2022, was straightforward - eligible homebuyers received direct interest subsidies added to their loan accounts immediately, which reduced their EMIs and made homeownership more affordable. This subsidy reduced interest rates by 6.5% for EWS and LIG borrowers on loans of up to ₹6 lakhs with tenures of up to 20 years. For mid-income home loan borrowers, subsidies of 3-4% on larger amounts often make the difference between affordability and unaffordability, said Puri.
Maximum deduction for home loans u/s 24
To invigorate the housing market, especially in the affordable segment, it is imperative to enhance the tax rebate on home loan interest rates under Section 24(b) of the Income Tax Act from ₹2 lakh to ₹5 lakh, said real estate experts.
Incentivise rental housing
While the government has already initiated support for Affordable Rental Housing Complexes (ARHCs), it is currently primarily focused on addressing the housing needs of urban migrants. In addition to this, the budget can also play a part in incentivising rental housing for the low-income segment, for many of whom, acquiring a home is simply not an option.
There are houses in the sub-50 lakh price range that have been acquired as an investment but remain unoccupied because owners do not find it viable to rent them out due to the low prevailing yields. The budget could introduce a 100% exemption for rental income up to ₹3 lakh for houses costing up to ₹50 lakh. This would incentivise investors to rent out properties and augment the supply of rental accommodation in the segment, which is the most impacted by the housing shortage, said Knight Frank India.
Government-owned surplus land can be used for high-density rental housing development
Government-owned surplus land in urban areas, such as that owned by railways, defence forces, or other government entities, can be used for high-density rental housing development. The housing units built here will be let out at a yield of ~2% on the rateable value in that location, said experts.
The government should introduce new tax incentives for purpose-built rental housing (a tax holiday for the first 5 years of operation to improve project viability for the developer, they said.
Make home purchases more tax-efficient, long-term capital gains benefit u/s 54
Under section 54 of the Income Tax Act, long-term capital gains from sales of existing houses can be utilised in buying or constructing a new property. If the investment for exemption is done through an under-construction property, it can be claimed only if the construction of the property is completed within three years of the sale of the earlier house. Section 54 also states that a new residential property must be bought within one year before or two years after the sale of the old property to avail long-term capital gains benefits.
The criteria should be relaxed to two years in the case of purchasing a new property before the sale of the existing one as well. It is relatively much harder to find buyers for older properties due to limitations of bank financing and the upcoming supply, among others. This time extension will give sellers more time to look for better prices and avoid selling at discounts just to avail themselves of the capital gains, said experts.
Shishir Baijal, International Partner, chairman and managing director, Knight Frank India, said, “With the Union Budget for FY 2027 approaching, the housing sector requires focused intervention to address growing structural imbalances. While residential markets have shown resilience, affordable housing continues to underperform due to declining affordability, elevated input costs, and limited end-user support. A supportive regulatory and fiscal framework for rental housing can unlock underutilised stock, improve workforce mobility, and attract patient institutional capital into a segment that remains significantly underserved.”
