Why government needs to introduce a separate Section for repayment of home loan in ensuing budget

With the skyrocketing prices of real estate, it is almost impossible for a young couple for buy house of their own without taking a home loan. The average ticket size home loan has also gone up steadily in the past. Through this article I wish to request the government to introduce a separate section for allowing  tax benefits for home loan repayment and amend the income tax laws to rationalise the deductions in respect of home loan..

Present provision for repayment of home loan

Presently, as per Section 80 C of the Income Tax Act, an individual and an HUF are allowed to claim deduction upto Rs. 1.50 every year for repayment of the principal amount of home loan taken to buy or construct a residential house. This deduction is available along with various other items of mandatory nature like contribution towards employee provident fund, School tuition fees, life insurance premium in addition to various other voluntary items like PPF contribution, ELSS, Senior Citizen Saving Scheme deposits, Sukanya Samradhi Scheme etc,

The repayment principal amount is available for home loan taken from specified institution like Banks, Housing Finance Companies. This benefit can also be availed by those employees availing home loan from their employers, which are either a public sector company, university, or a local authority or a cooperative society, or any statutory authority or any corporation set up under any central and state statute, or a public company. This deduction can only be claimed after possession of the house has been taken or construction is completed.

Basis for recommendation

Section 80 C was introduced in 2003 with an initial limit of Rs. 1 lakhs and increased to Rs 1.50 lakhs in 2014. If we want to make it commensurate with the average rate of inflation of 6% for 18 years,  the amount of deduction available today should at least not be less than 2.85 Lakhs.

While the government did not increase the limit commensurately on the one hand but on the other hand more and more eligible items were added over the years and thus overcrowding the sphere. Items like deposits in Senior Citizen Saving Schemes, National Pension System, Tax saving fixed deposits, Sukanya Samridhi Scheme etc. are few of the examples which have been added over the years, expanding the scope of overall deduction available under Section 80 CCE covering Section 80 C, 80 CCC and 80 CCD(2).

On realistic basis the amount of home loan required to be taken has multiplied many times over the years due to skyrocketing prices of real estate. In some of the cases mandatory items like school fee, contribution towards employee provident fund and premium for life insurance policy themselves exceed the limit of Rs. 1.50 lakhs and thus crowding out the amount of principal repayment of home loan for which the tax payer cannot claim any deduction.

In view of the above facts, I request the finance minister to carve out the deduction for home loan repayment from Section 80 C and introduce a separate section to accommodate this item. This will also incentivise many fence sitters to contemplate buying a property with home loan and help revive the real estate sector and also help the government achieve the “Housing  for all by 2022” dream

Moreover, due to rampant delays in completion of projects, the borrower has to start servicing the home loan through regular EMI even though the possession has not yet been handed over to him. So I urge the government to allow deduction for repayment of home loan even in cases where the possession is not given by the stipulated time. Similar, presently, deduction for interest paid during construction, is allowed in five equal instalments beginning from the year in which construction is completed, within the overall limit of two lakhs for self-occupied property. I urge the finance minister to allow deduction of the 1/5 amortisation over and above the two lakhs deduction looking at the amount of interest which a home loan borrower has to pay.

Writer is a tax and investment expert and can be reached at [email protected] and on his twitter handle @jainbalwant

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April 2021