Fintotal News Analysis | New Home Loans in 2013 to Get Additional Income Tax Benefit
New Home Loans in 2013 to Get Additional Income Tax Benefit
Ruby Jacob, 08 Mar 2013

First time home buyers are set to get extra Income Tax rebate on home loans in 2013-14. In the Finance Minister's budget speech he proposed to introduce additional tax deduction of up to Rs 1 lakh on interest of home loan for first time home buyers besides the regular Rs 1.5 lakh deduction on home loan interest.

Value of house and home loan for one-time additional deduction

But there are strings attached. This tax benefit is applicable only on home loans up to Rs 25 lakhs. Home loan should be taken between 1st April 2013 and 31st March 2014 for buying a residential property from a bank or housing finance company. 

That makes this new tax benefit on first time home loan interest a one-time affair available to just those who take home loan the next financial year unless it is extended further.

There are more conditions to this first time home loan tax deduction. The value of house or residential property should not be over Rs 40 lakhs. Anyway considering 80% margin for home loan in most banks you cannot expect to buy a house costing over Rs 31 lakhs for a loan of Rs 25 lakhs. 

You can buy a bigger house costing up to Rs 40 lakhs with that much loan, of course, but you'd have to arrange the rest of the money yourself.

First time home buyer

Another important condition is that you should be a first time home buyer, not just first time home loan taker! On the date of taking home loan you should not own any residential house. 

Considering all these now you know who would be the only beneficiaries of this additional income tax benefit- first time home buyers from smaller cities and rural areas where property prices are less.

As it stands right now this deduction does not apply for home loan taken for construction of residential house. If that is the case then home loan takers from rural areas are also out of this because most houses are constructed by borrowers in rural areas.

New section for additional deduction on home loan interest

A new section 80EE will be inserted in the Income Tax Act to accommodate this tax deduction on first time home loan interest. A good thing is that if interest payable in the first year 2013-14 is less than Rs 1 lakh the remaining can be claimed in the financial year 2014-15.

You can claim both deductions

Section 24 gives deduction of maximum Rs 1.5 lakhs on interest payment on a loan taken for construction or buying house property. However you cannot have income tax deduction for the same interest amount under both section 24 and section 80EE. 

This is not a big deal because for a loan of Rs 25 lakhs you'd be paying annual interest ranging between Rs 2.4 lakhs to 2.45 lakhs on tenure of 10 years to 20 years, assuming an interest rate of 10%. Hence after claiming home loan interest deduction of Rs 1.5 lakhs under section 24 you would still be left with close to Rs 1 lakh for claiming under section 80EE.

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