Budget 2019 proposes to increase 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. The deduction is available on loans taken up to March 31, 2020.
This will provide a total benefit of Rs 7 lakh over a loan period 15 years.The FM said in her budget speech: “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 upto 31st March 2020 for a purchasing an affordable house upto 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 in to benefit of Rs 7 lakh to the middle class home buyers over a loan period of 15 years.”
“This proposal will benefit the middle-class first time home owners who will now get enhanced deduction of Rs 1.5 lakh (over and above the existing deduction of Rs 2 lakh) on account of interest on housing loan for a house valued upto Rs 45 lakh if the loan is taken before 31st March 2020.
Former Finance Minister Piyush Goyal in his interim budget 2019 speech had announced exemption from income tax on the notional rent from second house property. In addition to that, one can also invest capital gains of up to Rs 2 crore arising from sale of house in two house property instead of one, as per the interim budget. However, this benefit is available only once in a lifetime.
At present, for a self-occupied house, one can avail a tax break on the principal amount repaid on the home loan as well as the interest paid on it. Under Section 80C of the Income Tax Act you get a deduction for the principal (of the loan) repaid up to Rs 1.5 lakh a year and the interest paid is deductible up to Rs 2 lakh per annum under section 24. These deductions are allowed from the gross total income before calculation of tax, thereby reducing the total tax payable.
Budget 2017 had changed the tax incidence for houses that are let-out on rent or are considered to be on rent (Deemed let-out). From FY 2017-18, the ‘loss from house property’ was restricted to Rs 2 lakh per annum for rented houses and ‘deemed to be let-out’ houses.
This move put a limit on the amount of interest paid on a home loan that can be claimed as a set off in case of ‘rented/deemed to be rented’ house. This, thereby, has effectively reduced the tax benefit that an individual gets from the interest paid on home loan in the above mentioned case. The unadjusted loss from house property can be carried forward for eight assessment years but can only be set off against income from house property.
In addition, home buyers availing home loans in FY 2016-17 were allowed to claim an additional tax benefit of up to Rs 50,000 under section 80EE of the Income Tax Act. The deduction is over and above the limit of Rs 2 lakh, provided it is for a self-occupied property.
