Additional tax gains for home buyers in Budget

If you have taken a home loan, deduction of up to Rs 2 lakh is allowed for the interest you pay. The loan may have been taken for purchase or construction of a house property. In case loan is taken for construction, this deduction was allowed if construction was completed within three years.

Extension of construction period for availing home loan benefits: In a significant relief to home buyers the finance minister has extended the time limit for completion of construction to five years. This is a welcome move and protects the interest of buyers who suffered loss of tax benefits as well as higher interest outgo due to delays from the builder’s end.

The period of five years is counted from the end of the financial year in which loan is taken. So if loan was taken on  April 30 ,2015, the construction must be completed by March 31, 2021. This extension also applies to you if your construction is going on and is not complete yet. Total interest paid in the financial year or R2 lakh, whichever is lower, shall be allowed when construction is completed within five years; if construction is not completed within five years, your deduction shall be limited to Rs 30,000 per annum.

Home loan interest can be claimed starting the financial year in which the construction is complete. Any pre-construction interest can be accumulated and claimed in five equal instalments along with it. Though the maximum aggregate amount that can be claimed in a year shall be limited to  R2 lakh where the property is self-occupied.

The bad: Builders though are likely to increase time frame for completion of projects, as was the case when the limit was 3 years. Given home owners are the mercy of builders for completion of construction, it would have more beneficial to give an even higher time limit of 10 years or so.

A similar disallowance exists while availing exemption under Section 54 and section 54F against long term capital gains. If an under construction property is purchased from the gains, its construction must be completed within 3 years of the sale of the capital asset to avail exemption. No change has been brought to this rule.

Additional deduction under Section 80EE: The finance minister also revived tax deductions under Section 80EE.

This deduction will be allowed to tax payers who are buying their first house. The value of the house must be less than R50 lakh and the loan must be for less than R35 lakh. The loan must be taken from a financial institution or a housing finance company. Loan must be sanctioned between April 1, 2016 to March 31, 2017 and the taxpayer should not own any residential house property on the date of sanction of the loan. There is no limit on the number of year for which this deduction can be claimed, the benefit of deduction is available till the repayment of loan continues.

The deduction shall be over and above the limit of R2 lakh provided for a self-occupied property under section 24 of the Act. In its previous avatar Section 80EE allowed a maximum deduction of R1 lakh available in only two financial years—FY 2013-14 and FY 2014-15. This condition has been removed.

With these changes in tax laws it is hoped there will be substantial push to growth in housing sector especially in tier II and tier III cities. It will also result in reduced litigation where builders have defaulted. A welcome benefit for first time home owners.

Happy Investing

Source:Yahoofinance.com