Home Loan Interest Deduction

The current Budget has not provided much to the Individual Tax payers, except for some fringe benefits.  A noteworthy offering is in the form of Home Loan repayment, which is beneficial to many home buyers.  It was indeed true, that  a delay in a Real Estate project, resulted in an effective cost increase, to the tune of 25% for a new home buyer.   The new Tax Budget helps them now.  Let us see how.

WHAT IS IN STORE AS PER EXISTING TAX RULES?

The Income Tax Act 1961 states that a borrower can claim deduction under Section 80C against Principal Repayment, with a cap of INR 1.50lakhs, and up to INR 2.00 lakhs for payment of Interest under Section 24(b) for a self-acquired house.  By leasing out the house, the entire amount of interest paid is exempted and can be claimed as Deduction.

Of-course, all these depend on the Ownership of the property.  But one issue here is that till the construction is complete, and the registration and ownership of the property is fully transferred to the Loanee, the entire amount is not eligible for deduction.  Over and above this, when construction of the property is delayed, and if the construction is not completed within 3 years of availing the loan, the maximum amount that a tax payer can claim towards interest on Housing Loan is only INR 30,000 per annum.  The deduction of Interest part can be claimed to the tune of INR 2,00,000 only if the property is fully transferred and registered in the transferee’s name and the total construction is completed within a period of 3 years.   This is a hitch in the current scenario, wherein the Real Estate projects these days normally are delayed by 30 to 36 months.  Hence a person buying a property under construction, stands to lose on Tax benefits, if the project is delayed.

WHAT IS THE BENEFIT AS PER NEW RULES?

In the current budget, the Finance Minister has proposed to increase the time limit for completion of a project from 3 years to 5 years.  Hence a Tax Payer can avail the benefit of interest on Housing Loan, to the tune of full INR 2 lakhs, even in cases where the project gets completed in 5 years from the end of the financial year in which the Home Loan was availed.  To quote an Example:

Ramu has availed a Home Loan of 100 lakhs, in July 2016 for a period of 25 years, but gets the possession of the House only in June 2022 or before.  Now he gets the full rebate of INR 2,00,000 towards Housing Loan interest, even if the project completion is delayed beyond 3 years.

OBVIOUSLY THIS WOULD BENEFIT MANY OF THE NEW HOME LOAN ASPIRANTS……