New Delhi: Providing relief to India’s middle class, Finance Minister Nirmala Sitharaman in her first budget speech in Lok Sabha on Thursday extended an additional deduction to home-buyers in the affordable housing category.
Union Budget 2019 decided for an additional deduction of up to Rs1.5 lakh for interest paid on housing loan, upto Rs 45 lakh borrowed up to March 31, 2020.
This deduction will be over and above the deduction of Rs 2 lakh allowed on a home loan interest payment. If one avails a home loan for purchase or construction of a house, the capital repayment and interest paid on the loan qualifies for deduction under separate income tax sections.
While principal repayment qualifies for deduction under section 80C of the Income-tax Act, 1961 and has an overall limit of Rs 1.5 lakh a year, the interest payment on home loan qualifies for deduction under section 24(b) of the Act, with an overall limit of Rs 2 lakh a year.
Another important point is that this scheme is only limited for loans sanctioned in the ongoing financial year, ending on March 31, 2020. Moreover, if the purchase cost of the home being bought is over Rs 45 lakh, the scheme will not cover loans. Accordingly, while the new additional deduction will benefit home buyers in smaller towns or tier-2 and 3 cities, its benefit in tier-1 and metro cities will be limited due to higher real estate prices.