Modi 2.0 regime’s first Union Budget has good news for homeowners. The Budget 2019 has proposed to hike the deduction that can be claimed for interest paid on loans taken for affordable housing by Rs 1.5 lakh to Rs 3.5 lakh per annum for houses valued up to Rs 45 lakh. Remember, the deduction will be available on loans taken up to March 31, 2020. Finance Minister Nirmala Sitharaman has said this will provide a total benefit of Rs 7 lakh over a loan period 15 years.
“For realisation of the goal of ‘Housing for All’ and affordable housing, a tax holiday has already been provided on the profits earned by developers of affordable housing. Also, interest paid on housing loans is allowed as a deduction to the extent of Rs 2 lakh in respect of the self-occupied property. In order to provide a further impetus, I propose to allow an additional deduction of up to Rs 1,50,000/- for interest paid on loans borrowed up to 31st March, 2020 for purchase of an affordable house valued up to Rs 45 lakh,” Sitharaman said in her Budget speech.
Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh (Rs 2 lakh + Rs 1.5 lakh). This will translate into a benefit of around 7 lakh to the middle-class home-buyers over their loan period of 15 years.
“We welcome the government’s focus on Affordable Housing. The interest deduction on home loans raised by Rs 1.5 lakh to Rs 3.5 lakh and also the housing cost being fixed at Rs. 45 lakh and below,” said George Alexander Muthoot, MD, Muthoot Finance.
The additional Rs 1.50 lakh tax exemptions on interest payment on housing loans over existing Rs 2 lakh is a big relief to home loan takers, according to Deo Shankar Tripathi, MD & CEO of Aadhar Housing Finance.
Home loan takers have to ensure certain conditions are met to avail this benefit. Suresh Surana, Founder, RSM Astute said: “This is subject to the condition that the loan is being taken during the period from 1 April 2019 to 31 March 2020 and the assessee does not have any other residential house on the date of sanction of loan.”
Considering that a majority of homebuyers fall in the lower and mid-income segments, this tax benefit will boost demand substantially. “This will significantly benefit first time home buyers who will enjoy the benefits of interest subvention under the CLSS scheme and the announced tax benefits. With effective interest coming down, it will increase the eligibility for the mid-income housing segments,” avers Ramesh Nair, CEO & Country Head, JLL India.
Previously, for a self-occupied house, you can avail a tax break on the principal amount repaid on the home loan and on the interest paid. Under Section 80C of the Income Tax Act, one can get a deduction for the loan principal repaid up to Rs 1.5 lakh a year. The interest paid is tax deductible up to Rs 2 lakh per annum under section 24. These deductions are done from your gross total income.