Budget 2019: Additional income tax deduction announced on home loans for affordable houses

New Delhi: The first budget of the second term of the Narendra Modi-led government on Friday extended an additional deduction to home-buyers in the affordable housing category.

In her maiden budget speech, finance minister Nirmala Sitharaman said an additional deduction of up to ₹1.5 lakh for interest paid will be allowed on a loan borrowed up to 31st March, 2020, for purchase of an affordable house valued at up to ₹45 lakh.

What needs to be noted here is that this deduction will be over and above the deduction of ₹2 lakh allowed on a home loan interest payment. If one avails an home loan for purchase or construction of a house, the capital repayment and interest paid on the home loan qualifies for deduction under separate income tax sections. While principal repayment qualifies for deduction under section 80C of the Income-tax Act, 1961 and has an overall limit of ₹1.5 lakh a year, the interest payment on home loan qualifies for deduction under section 24(b) of the Act, with an overall limit of ₹2 lakh a year.

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Another important point is that this scheme is only limited for loans sanctioned in the ongoing financial year, ending on 31 March, 2020. Moreover, if the purchase cost of the home being bought is over ₹45 lakh, the scheme will not cover home loans for such properties. Accordingly, while the new additional deduction will benefit home buyers in smaller towns or tier-2 and 3 cities, its benefit in tier-1 and metro cities will be limited due to higher real estate prices.