First time home buyer? The additional deduction will be a boon to your finances!

12-May-2016 written by : FSI-Team

There is indeed reason to cheer for first time home buyers, as an outcome of the Union Budget 2016. From the beginning of the current financial year, i.e. April 01, 2016 buyers can look forward to some additional tax relief upon purchasing their new home. The idea behind this scheme stems from the Government’s proposal to promote its ‘Housing for All by 2022’ scheme that is to make affordable housing a reality. At the same time, this move is welcomed as a breath of fresh air and is expected to give a boost to the real estate sector, which is has been rather slow and on a downturn in recent times.

What does the Finance Bill state?

Currently, under the provisions of Section 80EE of the Income Tax Act, 1961 a deduction of Rs. 1.0 lac towards the interest paid on a loan availed by an individual to purchase residential house property is available. This benefit is for the two assessment years beginning on April 1, 2014 and 2015 both.

Under this provision, there is an additional benefit of Rs. 50,000 on the interest paid on a housing loan for first time home buyers commencing April 01, 2016 for a loan of up to Rs. 35.0 lacs, with a cap on the property value of Rs. 50.0 lacs. This deduction will be over and above the existing limit of Rs. 2.0 lacs provided for self-occupied property under the head ‘Income from House Property’ of Section 24 of the Act. It will also be applicable until the repayment of the housing loan continues. There is however no change in the deduction limit for the principal component of the housing loan availed.

To avail of this benefit, the loan amount should have been sanctioned during the period from April 1, 2016 to March 31, 2017.

What does this mean for a homeowner?

This change will bring down the effective rate of interest for home loans for the homeowner over the tenure of the loan, depending upon the tax bracket that the individual falls under. Given the cost of housing projects in metros and tier-I cities, the persons most likely to benefit from this tax exemption are those in tier-II and tier-III cities. For instance, a 2 BHK in Mumbai in prime locations is likely to cost upwards of Rs. 3.0 crore. This is expected to bring some much needed traction in the domain of affordable housing.

In conclusion

While availing of a home loan does come with its advantages and more so with this new tax benefit, keep in mind that to avail of the best deal on loans your CIBIL score needs to be up to the mark. Before you apply for the loan, it is prudent to do a cibil score check at least six months before you do so. While there is nothing that says you may not get a loan with a low CIBIL score, remember the higher the CIBIL score the better the terms, especially when it comes to interest rates. In order to secure the best loan, compare home loans before you sign along the dotted line.

This welcome move will encourage first time buyers and make buying their dream home a reality.



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