Relief for home-loaners, FM to double tax deductions

With property prices and interest rates rising with each passing year, the government is considering raising the tax exemption on interest paid on housing loans to up to Rs 3 lakh annually from the existing limit of Rs 1.5 lakh in the coming budget, which is scheduled to be tabled in Parliament on 16 March.

At present, a deduction of up to Rs 1.5 lakh is allowed from taxable income towards interest on loans taken to purchase a house. Besides, borrowers also enjoy tax exemption on the payment of the principal amount.

[caption id="attachment_211051" align="alignleft" width="380" caption="At present, a deduction of up to Rs 1.5 lakh is available from taxable income towards interest on loan taken for house. Flickr/nickname"][/caption]

If the proposal is accepted, it will not only boost the sagging realty sector but also result in increasing the disposable income of individuals by anywhere between Rs 15,000 and Rs 45,000. This could lead to higher savings and/or consumer spending.

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In order to arrest the declining growth rate, industry associations have been demanding raising the tax ceiling for housing loans. According to Ficci secretary general Rajiv Kumar, the exemption needs to be harmonised with rising interest rates and increased to at least Rs 2.5 lakh.

"We recommended that the existing tax deduction limit on income tax of an individual should be increased from the current level of Rs 2.5 lakh to at least Rs 5 lakh," CII Director General Chandrajit Banerjee told PTI.

Of this, Rs 3 lakh should be towards interest payments to offset the impact of high interest rates, he said, adding that the remaining Rs 2 lakh should be exclusively towards principal loan repayment as the present limit of Rs 1 lakh is already overcrowded with several other items.

Echoing the same view, Assocham and the PHD chamber also said the exemption limit needs to be raised for both interest and principal.

According to a report in the Business Line, the Parliamentary Standing Committee on Finance is also contemplating raising the limit for deduction of house rent from Rs 2,000 to Rs 5,000 a month. "Keeping in view the rising cost of renting out accommodation for a common man, the proposed monetary limit of Rs 2,000 a month for deduction in respect of rent paid might be enhanced to Rs 5,000 a month," the report said.

With inputs from PTI