Monday, June 15, 2009

Income-tax exemption for interest payment on home loans - limit may be raised to Rs 2.5 lakh a year

A proposal to boost demand and rebuild the slowdown-hit housing industry:

The ministry of housing and urban development has urged finance minister Pranab Mukherjee to make an announcement to this effect as part of his Budget presentation in early July, a government official said on condition of anonymity.

Existing tax exemption limits inadequate to boost housing - focus area of Rahulbaba's government:

At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year.

Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh.

Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh.

If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year. This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable.

To boost housing, Rahulbaba, start deduction as soon as loan repayment starts!

The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand.

Are you ready to boost the housing?

Surprisingly, these people don't look happy about getting an opportunity to boost the housing! Rahulbaba would be very disappointed if he reads these comments.

dharminder, Mumbai, says:
The government of aam aadmi is hell bent on rescuing the builders. Instead of forcing the builders to reduce the exorbitant prices it is instead trying to prop it up with artificial incentives. If the govt. cannot force these builders then at least it should let the forces of demand and supply play out in the market.

The news channel already have reported that builders have increased prices by 200-300 sq. ft. What brilliant anticipation or they knew beforehand?

It is a shame we have such corrupt people in our govt. During the last 4-5 years one is getting the distinct impression that govt. is subjugated to builders.
[15 Jun, 2009 1319hrs IST]

BhanuMurty, Hyderabad, says:
YES! YES! The Builders will be happy and the banks will also be happy. NOT THE CUSTOMERS!

The customers still have to pay the exorbitant interest to these banks.A reduction of Rs.2500 per month in the EMI? For how long? How long banks can afford these lower interest rates? One year like SBI promised? What next? The cyclic nature will take its own course of action and whatever falls, will have to rise again. On the pretext of one or the other, these same banks will increase the Rate of Interest. Can you guarantee that they will not????Also see how the interest rates on deposits have been reduced of late.

The solution is not in empowering one sector and diluting another(PPF/NSC Interests). See how clever is the Government. IN total, it has not done anything for the masses. Reduce the interest on safe avenues, get it filled with real estate sector. This is a zero sum game for the Home loanee, as he will benefit from neither.
[15 Jun, 2009 1204hrs IST]

Ram, Chennai, says:
This is of no use to the common man. What the common man needs is drastic reduction in the price of homes. Dear Mr. finance minister, instead of conning the common man like this, pls force the builders to reduce their price.
[15 Jun, 2009 1001hrs IST]

Venkateswar Oruganti, Hyderabad, says:
Govt should mainly give better tax break for Principal re-payed or else banks will extract more from loaners.
[15 Jun, 2009 0904hrs IST]
To read more, please, visit - The Economic Times

I am sure, you are different. You are 100% ready to boost the housing. Aren't you? Please, share your views in the comments.

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  1. what a great idea to further loot the common man.

  2. ha...who would take a 20 year loan in these circumstances?? who knows who will get the next pink slip?? how would someone repay a loan if they dont have a solid life long guaranteed salary?

  3. Nothing will boost heyped realty.
    Accept the reality.

  4. It is clear beyond doubt that reduction in the prices of property alone would revive the interest of property buyers.
    Our Govt. is only trying everything to help the Builder community and the banks.
    They really don't deserve it.

  5. Income tax exemption will help, but we need price reduction by builders. Nothing else will do.

    Though I see many R2I friends, who have homes in their buy list and will probably go ahead with their purchases. But apart from them, everyone else simply cannot afford such costly housing and expects lesser prices.

  6. Real estate market is getting better. Measures like this will go a long way in restoring buyer confidence. We need a recovery in this vital sector that provides employment to so many people. Increase tax exemption, falling loan rates, boomig stocks is ideal scenario of revival of RE.

  7. I have find the results for the number of 2/3 bhk flats available for sale in Pune by builder/Agent/Individual on a popular Property site.

    Total Apartments for Sale in Pune

    Range(From - To) 2BHK 3BHK
    10 - 20 Lacs 655 3
    20 - 30 Lacs 3303 96
    30 - 40 Lacs 4954 1604
    40 - 50 Lacs 2503 2421
    50 - 60 Lacs 1008 1665
    60 - 70 Lacs 625 879
    70 - 80 Lacs 289 599
    80 - 90 Lacs 93 518
    90 - 1 Cr 23 376

    Total 13453 8161

    So total 13453 2BHK and 8161 3BHK are for sale

    As some ads may be old so also putting the no. of flats available since last month

    Total Apartments for Sale Since Last Month

    Range(From - To) 2BHK 3BHK
    10 - 20 Lacs 336 2
    20 - 30 Lacs 1770 63
    30 - 40 Lacs 2981 853
    40 - 50 Lacs 1726 1336
    50 - 60 Lacs 721 984
    60 - 70 Lacs 462 624
    70 - 80 Lacs 229 402
    80 - 90 Lacs 62 369
    90 - 1 Cr 15 270

    Total 8302 4903

    So total 8302 2BHK and 4903 3BHK are for sale since last month

  8. Is the govt. going to pay for home loan? In any case, buyers will not fall to this trap as the savings are meager as compared to what they would be when RE prices would be lowered.

    People comparing stock market with RE should know that RE did not come down by 55% when they were down. Also, stocks are now driven by FIIs due to P-notes & not domestic investors alone.

    Home loan NPAs are only increasing. Read for more:-

    Public Sector Banks Witness Rise in Home-Loan Defaulters:-

  9. Ravi Baba, now go add these 12-13 comments to those 4-5 above :)