Finance minister P Chidambaram on Thursday increased the tax deduction on interest for first-time home buyers taking loans up to Rs. 25 lakh by Rs. 1 lakh. This will be over and above the deduction of Rs. 1.5 lakh that all home loan customers are entitled to.
This will provide massive relief to buyers of low and middle income group housing, who form the bulk of home loan customers and indicates that the government is reaching out to this class of neo-middle class consumers.
“This will promote home ownership and give a fillip to a number of industries like steel, cement, brick, wood, glass, etc. and also create thousands of jobs for construction workers,” said Chidambaram.
“If the limit is not exhausted, the balance may be claimed the following year. This deduction will be over and above the deduction of Rs. 1.5 lakh allowed for self-occupied properties under Section 24 of the Income-Tax Act,” he said.
The move is expected to give a boost to the affordable housing sector, which has been struggling in the face of low demand due to high interest rates and the slowdown in the economy.
“However, this provision is only for the first year and with a carry-forward benefit of the unutilised deduction to the second year,” said Anuj Puri, chairman and country head, Jones Lang LaSalle India, a leading real estate consultancy. “This will help boost housing sales in tier 2 and 3 cities and peripheral areas and distant suburbs of metros, but not within the metros, where housing is more targeted towards the middle and upper income segments.”
“Developers will now stop focusing all their energies on luxury housing. However, the decision on taking advantage of this benefit should be taken by investors based on the rest of their financial plan, and not only because of the tax benefit,” said Vishal Dhawan, founder, Plan Ahead Wealth Advisors, an investment consultancy.