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Tata Capital > Blog > Loan for Home > Income Tax Rules on Home Loans after Budget 2017

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Income Tax Rules on Home Loans after Budget 2017

Income Tax Rules on Home Loans after Budget 2017

2017 budget has proved to be extremely beneficial for the Real Estate industry. From infrastructure status to affordable housing to abolition of FIBP and NHB refinancing, the budget is a win- win for both developers and buyers. After demonetization, there was an apprehension of the downfall of real estate in India, but the union budget has proved this as a rumor. Let us have a detailed look at the various changes in the income tax rules after the current budget session-

For First Time Home Buyers

To accelerate the home buying process, the government is set to give a benefit of INR 2.4 lakhs to the first time home buyers whose taxable annual income is below 18 lakhs. This amount will be equivalent to the overall home loan interest subsidy for a property loan taken for 20 years. However, the amount will be reduced to 2.2 lakhs if the home loan is taken for a tenure of 15 years. This move will benefit the middle - income group.

Additional Read: Buying a New House? Make Sure to Follow this Home Buying Guide for First Time Home Buyers!

Pradhan Mantri Awas Yojana

According to the Pradhan MantriAwasYojana, home buyers are entitled to receive subsidy at different rates based upon their annual incomes. Those with annual income below six lakhs will be eligible to get a subsidy of 6.5 percentages on the principal amount of 6 lakhs, no matter what is the loan amount. Subsidy is 4 percentage points on a principal amount of 9 lakhs for those whose annual income is below 12 lakhs and 3 percentage points on a principal component of 12 lakhs for the group whose annual income is below 18 lakhs.

Interest on rented property

If you have a rented property, there is bad news for you. The government in its annual budget has curbed down tax benefits on the properties that are let out or deemed to be let out. According to the current law, a borrower is eligible to deduct the entire interest paid on the housing loan after adjusting for the rental income. While, the borrowers of self - occupied properties are entitled to get a deduction of INR 2 lakhs on interest repayment of home loan. But, now with the new rule, the borrower can only claim a deduction of INR 2 lakhs on interest repayment of property loan.  According to the government, this move will equalize the tax benefits for borrowers of both types of properties. However, experts are of the opinion that this rule will decrease the demand for buying a second home.

Additional Read: How to Claim Tax Benefit on House Rent Allowance?

Key Takeaways

  • It is better to book a property under joint ownership. If a house is booked under a couple’s name, both will be eligible to claim an income tax deduction of INR 2 lakhs.
  • The new rule excludes repair and maintenance charges as a deduction income from house property. However, there is a provision for a standard deduction at 30 percent of gross value as a compensation to repair and maintain your house property.
  • If you take a loan from your employer, friend, family member or a private lender, you are entitled to get a deduction. Though, this deduction will be only on the interest component, and not on the principal amount. For this, you will require a certificate from the lender.

On an average, the annual budget of 2017 has much optimistic news for the real estate industry, comprising of both developers and builders. The Central Government is determined to achieve its objective of ‘Hosing for All’ by the year 2022. Undoubtedly, this is the right time to invest in a house property.