By introducing an additional deduction of Rs.50, 000 in the Budget 2016 proposal, Finance Minister Arun Jaitley has given some reason to cheer to the first time home buyers. This additional deduction has been given on interest for loan upto Rs. 35lakh, provided the house value doesn’t exceed Rs.50lakhs. An additional deduction was much awaited as the costs of housing units have increased much over the recent years.
A home buyer in India is entitled to claim both the interest and principal components of home loan repayments for tax benefits. Currently interest payable on a self-occupied house is subject to a maximum deduction of Rs.2Lakh under the head Income from House Property.
Taxpayers and industry experts were expecting the government to increase the tax deduction limit for housing loans, especially in metropolitan cities, by about Rs. 1lakh to Rs. 3Lakh as the current limit of Rs.2lakh is insignificant. Besides interest, the portion of ones EMI which goes towards principal repayment is allowed to be claimed under Section 80C. This amount can be claimed within the overall limit of Rs. 1, 50,000 under Section 80C.
Tax experts and home buyers were also urging the government to look at carving out a separate deduction for principal re-payment of housing loan, as the principal paid is currently clubbed under Section 80C with other tax saving instruments, which effectively does not provide significant tax relief to the home buyer. The demand, if met, would leave behind a higher disposable income in the hands of the borrowers of home loans and also encourage investment in the realty sector.