Government Raises Interest Deduction Limit On Home Loan In Budget 2019. What It Means For You
In its bid to boost the affordable housing segment, the government announced an additional deduction of up to Rs 1.5 lakh on repayment of home loans under certain conditions. “A person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh,” Finance Minister Nirmala Sitharaman said while presenting her first Budget on July 5. In other words, a total deduction of up to Rs 3.5 lakh in taxable income will be provided to those taking home loans up to March 31 next year to buy property worth up to Rs 45 lakh for self-occupying.
According to Budget 2019 announcements, the additional deduction of Rs 1.5 lakh will be available under these circumstances:
- The loan is sanctioned by the financial institution during the period April, 2019 to March 31, 2020
- The stamp duty value of the new house does not exceed Rs 45 lakh
- The new house property should be covered in the 'affordable housing' category
- The buyer does not own any residential house property on the date of sanctioning of the loan
Currently, the taxman allows deduction of up to Rs 2 lakh on payment of interest on home loans under Section 24 of the Income Tax Act, 1961. After introduction of the new Section 80EEA under the Act, the maximum deduction an individual taxpayer will be Rs 3.5 lakh.
The announcement evoked mixed reactions from industry experts. Dhruv Agarwala, group CEO- Housing.com, PropTiger.com, Makaan.com and Fastfox.com hailed the government's decision on affordable housing.
"This boost on the demand side was clearly needed considering that many home buyers have turned fence-sitters, awaiting such tax sops or correction in prices," he said.
Naveen Wadhwa of Taxmann, however, said that the assessee will not be able to fully utilise this deduction.
He used the following example to explain his view:
Suppose Mr X buys a new house in April, 2019 and the cost of such house is Rs 45 lakh. He takes a housing loan of Rs 40 lakh (with 90 per cent financing) from XYZ Bank at say 8.8 per cent rate of interest with a repayment tenure of 20 years. In next 5 years, he would pay following interest and principal amount:
| Financial Year | Payment of interest | Payment of principal |
|---|---|---|
| 2019-20 | 2,62,350 | 56,935 |
| 2020-21 | 3,43,736 | 4,25,714 |
| 2021-22 | 3,36,223 | 4,25,714 |
| 2022-23 | 3,28,023 | 4,25,714 |
| 2023-24 | 3,19,070 | 4,25,714 |
| 2024-25 | 3,09,298 | 4,25,714 |
"As total interest payable in all years would not exceed Rs 3,50,000, the user shall not be able to claim the full deduction," he added.
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