Finance minister P Chidambaram may have good news for home loan borrowers in the union budget for the financial year 2013-14 to be presented later this month.
The government is considering hiking the tax deduction limit on home loan interest from the present Rs. 1.5 lakh to more than Rs. 2 lakh per annum.
The tax deduction on interest on home loans has remained frozen at Rs. 1.5 lakh a year for 12 years despite a steep rise in borrowing costs and inflation.
Increased costs for land and building materials, such as cement and steel, combined with rising demand to own homes in urban areas, flooded by migrants, have pushed up demand for mortgage-backed home loans in India in recent years.
The average home loan size has grown from about Rs. 17 lakh about three years ago to close to Rs. 22 lakh currently.
“This move would also increase the demand for housing units and have a multiplier effect on the economy through increased demand for steel, cement and labour,” said Homi Mistry, partner, Deloitte Haskins & Sells, a consulting and auditing firm.
In its first rate cut in nine months, the RBI last week said it would lend to banks at 7.75%, instead of 8%, enabling them in turn to offer cheaper loans to home, auto and corporate borrowers.