Additional income tax deduction of up to Rs 3.5 Lakh on home loans
| Monday | 19th August, 2019
The availability of an affordable housing loan ensures you turn your dream of purchasing a house into reality. As per an NHB data, the market for individual home loans grew at around 21% for the year 2017-18. It is a sharp increase considering the previous year saw a growth of just 14%.
Adding to it, 78% of newly opened accounts in the year 2017-2018 were to avail home loans under Rs. 25 Lakh. It is a stark example of the growing impetus of schemes like PMAY.
Coming over to expenses related to housing loan and the financial hurdles individuals face, the payable EMIs and tax liabilities they need to meet can be quite burdening. It may thus stress the finances way too much, which is one of the reasons why people refrained from availing loans in the past.
However, the recent proposal of Income Tax deduction of up to Rs. 3.5 lakh on home loans in the 2019 Budget Session was a welcome move. It aligns with the Indian government’s motto of providing affordable housing to everyone. While individuals with taxable income still had a scope to receive home loan tax benefit, the changes further widened this scope.
Deduction of home loan interest from taxable income – The changes
Individuals purchasing a new house with a housing loan are allowed to deduct the interest paid on the loan from their taxable income. Previously, the Income Tax Act, 1961 allowed this deduction with a cap of Rs. 2 Lakh. It means individuals could deduct only up to Rs. 2 Lakh paid as interest in a given financial year.
However, in the Budget Session of 2019, the Finance Minister made a big announcement that aimed to benefit first time home buyers from Tier-I and Tier-II cities.
As per the announcement, individuals availing a housing loan to purchase their house will get an additional deduction of Rs. 1.5 Lakh against the loan interest paid. This additional amount will be deductible over and above the existing deductible amount allowed, i.e., Rs. 2 Lakh.
Thus, it brings the total deduction limit in a year to Rs. 3.5 Lakh. It therefore makes owning a house further affordable, especially for people from the low and middle-income group who find paying interest a burden to their financial health.
However, individuals can proceed with this home loan tax rebate subject to a few conditions.
The house you purchase with the loan should not be valued more than Rs. 45 Lakh on the stamp paper.
Individuals seeking this deduction should be first time home buyers.
They should not own a residential house property on the date the loan is sanctioned.
You can receive this deduction on housing loans taken on or before 31st March 2020, i.e., only up to the current Financial Year.
The deduction is applicable only if you purchase a residential property to self-occupy.
Along with this additional deduction, individuals can further seek to reduce their loan burden by opting for attractive home loan interest rate. It will result in lower EMIs. Other factors you need to look for include foreclosure charges on the home loan. Lenders like Bajaj Finserv offer home loans in India at low-interest rates and nil foreclosure/part-prepayment charges for individuals availing this loan at a floating rate of interest.
They also bring pre-approved offers that make the process of availing finance hassle-free while saving time. These offers are available on several financial products, including secured credit options like home loans as well as unsecured credit options like business loans. All you need to do to check your pre-approved offer is provide a few essential details like your name and contact number.
Now, with such offers, you can get your home loan quicker to purchase your dream house at affordable prices. Claim deductions of up to Rs. 3.5 Lakh on interest paid every year throughout the repayment tenor and keep your finances in check.
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