Proposal to increase the 1.5 lakhs tax-exemption towards interest payment of home-loans

The current limit of Rs.1.5 lakhs tax-exemption per year, towards interest payment on home loans, may increase to Rs.2.5 lakhs, if a proposal for the same gets the nod from the Ministry of Finance.

The proposal is said to have been made by the Ministry of Housing and Urban Development, for consideration in the upcoming Budget presentation in July, with the hope that such a move would help in revitalizing the real-estate industry.

The current limit of 1.5 lakhs is inadequate for single buyers, since payments towards interest component is usually very high in the initial years or repayment.

Buyers would still benefit, if they were to include their spouse as a co-buyer/co-applicant in the home loan, since each one can them can claim exemption upto Rs.1.5 lakhs.

But with the proposed change, there will not be a need to have a co-applicant, just for the sake of tax-saving purposes. And this will also help higher value deals, where again, co-applicants will come into play.

Note that all these limits are for a self-occupied property. For let-out properties, the full interest paid can be exempted, provided one shows the income from the house property, that is, income via rent/lease.

The limit towards repayment of principal, for both self-occupied as well as let-out property (combined), is Rs.1 lakh only. So even if you like to pre-close your loans, over an above the 1 lakh principal, it will not be beneficial with respect to taxes. There seems to be no proposal in changing this and if at all this component is to be changed, it should have an effect on Section 80(C) too.

(News of the proposal by Deepshikha Sikarwar for ET :
Home loan tax break limit may be raised)

Disclaimer : The author is NOT a certified tax-consultant and the views expressed are his own, and based on his personal experiences. You are advised to consult your tax-planner before making decisions.