Nirmala Sitharaman, the Financial Minister, presented the first Union Budget of the Modi government on 5 July. FM has proposed an additional tax deduction of Rs 1.5 lakh on interest paid on housing loans which are taken up to March 2020. The government aims to boost the affordable housing sector by introducing the new Section 80EEA.
According to Section 24 of the Income Tax Act, 1961, previously, a taxpayer would get a deduction of up to Rs 2 lakh on interest paid on home loans. With the inclusion of the new Section 80EEA under the Act, a taxpayer will qualify to get a maximum tax deduction of Rs 3.5 lakh upon meeting the pre-set conditions which are applicable.
The additional Rs 1.5 lakh tax deduction on home loans will be available to individuals under the following circumstances:
- The financial institution must have approved the housing loan between April 2019 and 31 March 2020.
- The new house property’s stamp duty value should not be more than Rs 45 lakh.
- The new house property has to be under the ‘affordable housing’ category.
- The prospective buyer should not possess any residential house property on the loan sanctioning date.
Also, a few conditions about the carpet area have been mentioned in the memorandum of the finance bill but not specifically in the finance bill, 2019. The following are the conditions in relation to the carpet area of house property:
- Carpet area must not be more than 60 square meters (645 sq ft) in metropolitan cities of Chennai, Hyderabad, Bengaluru, Kolkata, Mumbai (entire Mumbai metropolitan region), and Delhi National Capital Region (restricted to Delhi, Greater Noida, Noida, Gurgaon, Ghaziabad, and Faridabad).
- In any other cities/towns, the carpet area must not be more than 90 square meters (968 sq ft).
- Also, this definition will be applicable to any affordable real estate project which is sanctioned on/after 1 September 2019.
Financial experts are of the opinion that the new additional tax deduction will be beneficial to homebuyers in smaller towns/tier-2/tier-3 cities. However, the benefit will be limited to homebuyers residing in metro cities considering the higher real estate rates.