Friday, 26 April 2013

Home loan, tax & necessity - Article in The Hindu Habitat dtd 04/27/2013

Home. No matter who we are or where we are, the word immediately brings to mind recollections of childhood, school, homework, parties and quite a few other memories. A lot of factors go into the decision making process which ends in the purchase of a house. Considering that it is perhaps one of the biggest personal financial investments that any person would make during their lifetime, the decision is not easy to make.

India may be a vast country but most people prefer to stick close to their roots. Language and culture barriers ensure long distance migration is almost never considered. In countries such the U.S., people easily migrate from the east coast to the west because language and culture barriers are almost non-existent. Add to this the fact that the style of living, resources available etc also remain uniform throughout the country. This is also the reason why real estate prices do not vary much in the U.S. In India, however, the real estate market is booming and land prices are at an all-time high. The global market is currently in recession and the effects are rippling and spilling over into the Indian economy as well, slowly but surely. The government has also provided some tax sops to make home buying an attractive proposition even during a recessionary phase.
The Finance Bill 2013 has an additional proviso for first time home buyers (provided the property is self-occupied) in the form of section 80 EE of the Indian Income Tax Act. The concept of first-time homebuyer tax benefits is borrowed from the U.S. This section provides the following:
1. Loan amount should be less than or equal to Rs. 25 kakh while the value of the property should be less than or equal to Rs. 40 lakh.
2. The loan should be disbursed during the current financial year (01-04-2013 to 31-03-2014).
If the above conditions are satisfied, the said buyer may take an additional deduction of Rs. 1 lakh for interest paid on loan under section 80EE. In case the buyer is not able to claim the whole benefit of deducting Rs. 1 lakh under section 80 EE, he also has the option of carrying forward the balance interest for a claim in the succeeding financial year. This is in addition to the standard home loan interest deduction allowed of Rs. 1.50 lakh under section 24(b) if the house is self-occupied and there is no upper limit of deduction of interest in case of the property let out.
G. Karthikeyan,
Chartered Accountant, Coimbatore.