The first budget of the second term of Modi government is expected to set the tone for policymaking for the next five years. In her maiden budget speech, Finance Minister Nirmala Sitharaman announced that the government proposes to increase the income tax deduction that can be claimed for interest paid on loans taken for affordable housing, for a house valued up to Rs 45 lakhs, by an additional Rs 1.5 lakhs to Rs 3.5 lakhs per annum.
FM Nirmala Sitharaman: To provide further impetus to affordable housing, additional deduction of 1.5 lakh rupees on interest paid on loans borrowed upto 31 March 2020 for purchase of house up to Rs 45 lakhs https://t.co/vjPvfFc2fH
— ANI (@ANI) July 5, 2019
Sitharman in her budget speech announced, “For realisation of the goal which is housing for all and affordable housing, a tax holiday has already been provided on the profit earned by developers of affordable housing. Also interest paid on housing loan is allowed as a deduction to the extent of Rs 2 lakh in respect of self occupied property. In order to provide further benefit, I propose to allow an additional deduction of Rs 1.5 lakh for interest paid on loans taken up to 31st March 2020 for purchasing an affordable house up to Rs 45 lakh in value. Therefore, a person purchasing an affordable house now will get an enhanced interest deduction up to Rs 3.5 lakh. This will translate into a benefit of Rs 7 lakh to the middle class home buyers over a loan period of 15 years.”
Presently, according to section 80C of the Income Tax act, in a self occupied home, the buyer gets a deduction for the principal (of the loan) repaid up to Rs 1.5 lakh a year and according to section 24, the interest paid is deductible up to Rs 2 lakh per annum.
With this announcement, an individual can avail tax benefits up to Rs 3.5 lakh on the interest amount, as opposed to the present Rs 2 lakh. This implies that a person can get a rebate on tax amount upto Rs 5 lakh, which includes Rs 1.5 lakh of principle loan repaid and Rs 3.5 lakh of interest on the loan paid.
The move announced in Nirmala Sitharaman’s Budget speech is going to be a boon for all the middle class home owners, who fall in the category. Moreover, the move is also going to provide a boost to the housing sector.