Budget 2017: Tax breaks for home loans likely to increase

Budget may raise interest deduction from Rs 2 lakh to Rs 2.5 lakh

Aiming to boost demand in the housing sector, the government may hike deduction limit for interest paid on home loans by Rs 50,000, from the current Rs 2 lakh to  Rs 2.5 lakh under Section 24 of the Income-Tax Act.

Homebuyers also enjoy deduction to the extent of Rs 1.5 lakh on principal repaid under Section 80C.  

The National Democratic Alliance government had raised the deduction limit from Rs 1.5 lakh to Rs 2 lakh in its first Budget of the current term. In last year’s Budget, Finance Minister Arun Jaitley had provided an additional deduction of Rs 50,000 on home loan interest, allowing interest repayment under Section 80EE for first-time home buyers. 

However, under this section, this additional benefit could only be availed of if the loan was taken between April 1, 2016 and March 31, 2017 and the cost of the property did not exceed Rs 50 lakh and the value of the loan was not over Rs 35 lakh.

“Extending the time period of the Section 80EE deduction and increasing the threshold limit of the home loan up to Rs 50 lakh is also under consideration,” said a senior official in the know. 

The Budget committee has also started collecting feedback from industry players. 

These sops are in line with the Prime Minister Narendra Modi’s thrust on affordable housing. In his address to the nation on New Year Eve, Modi had announced interest rebates on small-ticket home loans. 

Tax experts believe large deposits that came into banks since November 8 had raised expectation for such a move. Benefits for homeowners would have a positive impact on the real estate sector as well as on the overall economy. 

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“Housing segment is among the top priority of the government. Such incentives would encourage the housing-for-all initiative and will have a multiplier impact on the economy,” said Sudhir Kapadia, national tax leader, EY. 

He also added the real estate sector was facing a slowdown for the past few years, resulting in a colossal delay in delivery of projects and pile-up of unsold inventories.

“Now that the money is coming through the formal channel, it will give the government the requisite buffer and leverage to announce such relief measures,” added Kapadia. 

Other experts concur. “It is the right time when the government should alter the design of the property market. The government needs to change the policy and make the sector end-user driven rather than investor-driven.

They should charge higher tax on investors because they are sitting on a cash pile,” said Pankaj Kapoor, managing director, Liases Foras, a real estate research firm. In the current design, investor participation had seen a surge in property prices, robbing the right of end-users, which needs to be addressed. 

Affordable housing has been a part of the Modi government’s core agenda. Besides the increase in interest limits under Section 24 and Section 80EE, Jaitley had also increased the tax deduction limit from Rs 24,000 to Rs 60,000 per annum on house rent under Section 80GG in the 2016-17 Budget, which impacts individuals who are not salaried employees, or do not receive house rent allowance as part of their emolument.