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New Tax Sop For Home Loan Borrowers On Cards By ugesh sarkar, Section Loans & Finances
The Budget may bring some good news for home loan borrowers who are yet to get possession of their houses. Finance minister Pranab Mukherjee is considering providing tax rebate on home loan repayment even before the borrower gets possession of his property. The catch, however, is that the buyer must take possession of his property within a year.
This move will provide a boost to the real estate industry that has been reeling under impact of severe economic slowdown. Projects facing delays or staggered out completion schedules may also get a fresh lease of life. This is because renewed interest among buyers to claim full exemption on both principal and interest paid during the year may lead to early completion of projects. Mukherjee is likely to make an announcement in this regard in his budget proposals on July 6. At present, tax benefits are available to home loan borrowers only when construction of the property is completed and the house is handed over to the buyer before the end of the financial year. Though the principal amount repaid to the bank before the possession of the property is not eligible for tax benefit in the particular year or any subsequent year, interest payable for the period gets tax exemption in the five subsequent years in equal installments. Under the proposed tax structure, both the principal amount as well as the interest paid on the loan before possession will be eligible for tax rebate, according to a finance ministry official. The entire interest amount paid before the possession will be granted tax rebate in one go, compared with five installments at present. Source: Realty Plus New tax sop for home loan borrowers on cards Click On "Full Story" For More...
Mukherjee's predecessor Palaniappan Chidambaram was averse to providing such an incentive due to revenue considerations as well as the possibility of its misuse by real estate developers. According to bankers, the proposed move would give a push to the housing sector and home loan advances, which grew by a mere 5.9 per cent to Rs 267,000 crore in 2008-09. The housing loan portfolio of scheduled commercial banks had grown at 23.22 per cent and 12.7 per cent in 2006-07 and 2007-08, respectively.
T Y Prabhu, executive director of Union Bank of India, said it would provide direct benefit to tax payers as any tax concession on housing loans helps people to opt for their own house, as well as plan savings and tax liabilities better. L P Aggarwal, chief general manager of Punjab National Bank said, "It will be beneficial for home loan borrowers as well as the real estate industry and give a push to housing loan advances." CM Khurana, general manager of Oriental Bank of Commerce, agreed that the move would lead to demand for more home loans. Prabhu cautioned that it is normally difficult to give the possession in one year. "Any construction will go beyond one year. A project takes a minimum of two years or even three years in some cases. We need to see what exactly is the concession the government will give," he added. As per the Income-Tax Act, a principal repayment of Rs 1 lakh in a year can be deducted from the taxable income, provided it is paid after the completion of construction. Individuals are allowed to claim tax rebate of up to 20 per cent on the interest paid during the pre-possession stage in the year possession is taken and the balance 80 per cent over the next four years, with a cap of Rs 1.5 lakh per year.
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