Income tax Budget 2019 riddle: How affordable home loan applicant can claim full income tax benefit of Rs 3.5 lakh

Income tax exemption on the home loan interest up to Rs 3.5 lakh as proposed in the budget 2019 is the talk of the town as the Finance Minister Nirmala Sitharaman has increased the existing Rs 2 lakh limit to Rs 3.5 lakh per annum under the section 24(b). However, in the case of affordable housing where the upper cap is Rs 45 lakh, one can get up to Rs 3.21 lakh benefit as one can't get more than Rs 36 lakhs as a home loan. Therefore, experts are of the opinion that there should be an increase in the upper cap on affordable housing so that Rs 3.5 lakh income tax exemption becomes a reality for affordable home buyers.

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Commenting upon the net exemption that a home loan applicant can avail after buying an affordable unit Balwant Jain, a Mumbai-based income tax and investment expert said, "As the maximum limit on the residential house to be purchased, to avail of the benefit under the newly proposed Section 80 EEA, is Rs 45 lakhs, the buyer of the house would only be able to get a home loan of up to 80 per cent of the value of the property – i.e., Rs 36 lakhs. The rate of interest for a home loan of Rs 36 lakhs that is charged by the leading government bank, State Bank of India, is presently 9 per cent. Assuming that the home loan tenure is 20 years, the EMI comes to Rs 32,390. For the first year, out of the total EMI of Rs 3,88,680, the principal repayment comes to Rs 67,416 and the interest component comes to Rs 3,21,264. The calculation is made on the presumption that the principal amount is reduced monthly. So, against the maximum available tax benefit of Rs 3.5 lakhs, including the new benefit offered under Section 80 EEA, the taxpayer will only be able to claim a benefit of Rs 3,21,264 in the very first year of the home loan."

Jain said that from the above calculation, it's quite evident that Rs 3.5 lakh tax exemption is possible if the banks are allowed to loan above 80 per cent in the case of a unit costing Rs 30 lakh. Currently, a bank grants up to 80 per cent loan when the house property cost is above Rs 30 lakh while in the case of residential unit's price below Rs 30 lakh, one can get up to 90 per cent as the loan amount. So, it's impossible in the current scenario to claim Rs 3.5 lakh income tax benefit on affordable home loan until its upper cap is raised from Rs 45 lakh or the banks are allowed to give more than 80 per cent home loan in the affordable housing segment.