An additional tax deduction of Rs. 1.5 lakh has been proposed by the government on interest paid on home loans increasing the total deduction to Rs. 3.5 lakhs from the earlier Rs. 2 lakh limit under Section 24 of Income Tax Act, 1961.
The pre-requisites of claiming this benefit are (a) loan must be sanctioned in the financial year 2019-2020; (b) The value of the house does not exceed Rs. 45 lakhs; (c) the house must be categorised as ‘affordable housing’; and (d) the buyer has no residential property at the time of sanction of loan. This is more beneficial for people living in smaller cities as the Rs. 45 lakh cap provides restriction for real estate in bigger cities and metros due to high real estate pricing.
It is pertinent to note that the buyers will never be able to utilise the entire cap of Rs. 3.5 lakhs because even if the house costs the maximum of the limit, i.e. Rs, 45 lakhs, the maximum interest that may be levied will never touch Rs. 3.5 lakhs. As was explained by Naveen Wadhwa from Taxmann in the NDTV article.
For example, a buyer purchases a house for Rs. 45 lakhs with an interest rate of 8.8% which is to be repaid in the tenure of 20 years. The buyer would be paying the following in the next 5 years:Financial YearPayment of interestPayment of principal2019-202,62,35056,9352020-213,43,7364,25,7142021-223,36,2234,25,7142022-233,28,0234,25,7142023-243,19,0704,25,7142024-253,09,2984,25,714
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