Can Budget 2016 provide relief for home loan buyers?
Budget 2016 for home loan buyers
Home loans for purchase or construction of a house provides few income tax benefits to the borrowers. Currently, there is an income tax benefit for the interest payments and principal amount on home loans. However, it is felt that few existing provisions are a tad unfair, which can be addressed by the finance minister during the budget.
Partisan treatment to borrowers of self occupied property
When one talks about the interest on the loan for purchase or construction of a house, the prevailing law behaves differently with properties that are occupied by owner differently from the one that is let out or deemed to be let out.
Normally, an individual tax payer can declare interests benefits of upto Rs.2 lakh in a year for a self occupied property including the interest that the person is permitted to avail when the said property is still under construction. In contrary, the law allows deduction of full interest payment for individuals borrowing money with a view to gain profits from the appreciation of property prices. In an ideal situation, the existing clause should be overturned in a manner such that individuals borrowing with a view to benefit from interest arbitrage are not allowed while allowing genuine borrowers the full deduction on interest payment.
Further, it is felt that the limit of Rs.2 lakhs is considerably low, keeping in view the present rate of properties. If we take an example, the cost of a 1BHk may come to Rs. 1 crore in Mumbai. At the existing average home loan rate of 9.50%, the buyers’ annual interest liability will come to Rs.7.6 lakhs if he takes a home loan of Rs.80 lakhs. Keeping this in view, even if the prevailing policy of allowing full deduction on interest payment is not reversed, the government should at least do away with the limit of Rs.2 lakhs for one self-occupied property and bring them on par with let-out property.
Curbing the interest deduction for delayed completion
The existing law distinguishes between properties to compute the amount of interest deduction. This is based on whether the completion of the construction of the property is within the duration of three years from the end of the year the loan was taken.
Currently the interest allowance is only Rs.30,000 if the construction of the property is not completed within a period of 3 years. However, the interest deduction will be Rs.2 lakhs if the property is constructed within the time period of 3 years.
In recent times, it is observed that a significant majority of home buyers are purchasing under construction properties having possibility of delay in its completion. Therefore, it may look a tad unfair on the part of the government to penalise buyers who are paying for their home loans as well as rental accommodation.
The stipulated timeframe of three years for completion of construction is in stark contrast to the actual situation. A report by PropEquity in May 2015, states that the delay in handing possession varies from 18 months in Mumbai Metropolitan Region to 23 months in National Capital Region (NCR). Due to this very reason, only a few home loan borrowers are able to claim the full income tax benefit of Rs.2 lakhs.
