It was proposed in the Union Budget 2019 that the deduction that was claimed for interest paid on loans taken for affordable housing be increased by Rs 1.5 lakhs to Rs 3.5 lakhs per annum, for homes that were priced within Rs 45 lakhs. This deduction would be available on homes that were taken within March 31, 2020 and as a result, there would be a total benefit of Rs 7 lakhs for a loan tenure of 15 years. According to the Finance Minister, a tax holiday has been provided to realize the vision of Housing for All, on the profit earned by the developers of the affordable housing. Moreover, the interest paid on home loan has a deduction allowed as well, of up to Rs 2 lakhs in case of self occupied property.
Naturally, such proposals are meant to help the middle class, first time home buyers as they aim to find a home within Rs 45 lakhs. Even renowned real estate experts have commented that in order to realize the dream of Housing for All, the government has taken the right step so that the home buyers may have low coast funds at the disposal. The stamp duty value of the house property should not exceed Rs 45 lakhs and the individual also should not have any house of their own on the day of the sanction of the loan. Moreover, a majority of the home buyers fall in the lower and mid- income category and the tax benefit is sure to help them. They will also enjoy the interest subvention under the CLSS Scheme and will increase their eligibility.
More on the tax breaks
A few months back, Mr. Piyush Goyal, the former interim FM had announced an exemption of income tax on the notional rent from a second home. One could also invest capital gains of up to Rs 2 crores that would arise from the sale of the house but that benefit could be availed only once in a lifetime. As of now, in case a of a self occupied house, one can avail a tax break on the principal amount repaid on the home loan and well as on the interest that was paid on it. According to 80C of the IT Act, one can get a deduction for the principal repaid up to Rs 1.5 lakhs a year and the interest paid is deductible up to Rs 2 lakhs per annum under section 24. The deductions were allowed from the gross total income before the tax is calculated and thus reduces the total tax payable.
According to the budget of 2017, the tax incidence on the house was changed for houses that were let out on rent. From the Financial Year 2017- 2018, the loss from house property was also restricted to Rs 2 lakhs per annum for homes that were “deemed to be let out homes”. That had put a limit to the amount that was paid on home loan that could be claimed as a set off in case of a rented, or deemed to be rented home. This reduced the tax benefit that one got from the interest paid on home loan. The unadjusted loss from the house could be carried forward for eight assessment years but can be only set off against income from a house property.