Need sep­a­rate de­duc­tion for home loan re­pay­ment in Bud­get

DNA (Daily News & Analysis) Mumbai Edition - - FRONT PAGE - Bal­want Jain

With ris­ing prices of houses, it is al­most im­pos­si­ble for an av­er­age per­son to buy a house with­out bor­row­ing for it ei­ther through hous­ing loans or through loans from friends and rel­a­tives. In this ar­ti­cle, I wish to point out why the gov­ern­ment should take out the present tax ben­e­fit from Sec­tion 80 C and in­tro­duce sep­a­rate de­duc­tion for the prin­ci­pal re­pay­ment of hous­ing loan.

Present pro­vi­sion for re­pay­ment of home loan

Sec­tion 80 C of the In­come Tax Act al­lows an in­di­vid­ual and an HUF de­duc­tion up to Rs 1.50 lakhs ev­ery year in re­spect of re­pay­ment of the prin­ci­pal amount of home loan taken for pur­chase or con­struc­tion of a res­i­den­tial house to­gether with many other el­i­gi­ble items.

The ben­e­fit of re­pay­ment of home loan is avail­able pro­vided the money is bor­rowed from some spec­i­fied in­sti­tu­tions/en­ti­ties such as banks, hous­ing fi­nance com­pa­nies. This ben­e­fit can also be availed by em­ploy­ees who have taken the home loan from their em­ployer, which is ei­ther a pub­lic sec­tor com­pany, univer­sity, or a lo­cal au­thor­ity or a co­op­er­a­tive so­ci­ety, or any statu­tory au­thor­ity or cor­po­ra­tion es­tab­lished by law passed by cen­tral or state leg­is­la­tures or even a pub­lic com­pany. The de­duc­tion is avail­able for the prin­ci­pal amount re­paid after com­ple­tion of the con­struc­tion and can­not be claimed be­fore that.

Since the limit of de­duc­tion is ap­pli­ca­ble for var­i­ous items taken to­gether such as re­pay­ment of the prin­ci­pal amount of home loan, life in­sur­ance pre­mium, tu­ition fees of chil­dren, con­tri­bu­tion to Prov­i­dent Fund and Pub­lic Prov­i­dent Fund, ELSS in­vest­ments, etc. These many items gen­er­ally crowd out the prin­ci­pal re­pay­ment of home loan as the ba­sic limit of Rs 1. 50 lakh gets ex­hausted by some manda­tory items such as Life in­sur­ance pre­mium, school fees, con­tri­bu­tion to­wards prov­i­dent fund/nps. So ef­fec­tively the ben­e­fit for re­pay­ment of home loan gets over­flowed due to so many el­i­gi­ble items and thus, de­priv­ing the tax­pay­ers a le­git­i­mate claim for the amount spent or in­vested by him. Ba­sis for rec­om­men­da­tion Ini­tially, the limit of Rs 1 lakh was fixed in 2003 which was in­creased to Rs 1.5 lakh from 2014. Ap­ply­ing av­er­age inflation of 6% over the pe­riod of past 16 years, the de­duc­tion ceil­ing should be around 2.54 lakhs as of to­day.

On the one side the limit of de­duc­tion re­mained stag­nant but on the other side more and more items were added in the list over the pe­riod such as con­tri­bu­tion to Se­nior Ci­ti­zen Sav­ing Schemes, Na­tional Pen­sion Sys­tem, Tax sav­ing fixed de­posits, Sukanya Sam­ridhi Scheme, etc.

More­over, the amount of hous­ing loan re­quired for buying the house has mul­ti­plied many folds dur­ing this pe­riod due to ap­pre­ci­a­tion in the cost of res­i­den­tial houses over the same pe­riod. Even in most of the cases, the amount of prin­ci­pal re­pay­ment on a hous­ing loan it­self ex­ceeds the limit of de­duc­tion of Rs 1.5 lakh, set un­der Sec­tion 80CCE. In view of the over­crowd­ing of items el­i­gi­ble un­der Sec­tion 80 C, 80CCC and 80CCD(1) and need for larger home loans, I urge the fi­nance min­is­ter to in­tro­duce a sep­a­rate de­duc­tion for prin­ci­pal re­pay­ment of hous­ing loans, in the en­su­ing bud­get.

Since all the tax­pay­ers are not able to avail the home loan due to var­i­ous rea­sons in­clud­ing bad credit his­tory, I urge the fi­nance min­is­ter to con­sider ex­tend­ing the ben­e­fit of hous­ing loan prin­ci­pal re­pay­ment, to cover money bor­rowed from any­one, in­clud­ing friends and rel­a­tives. Like­wise, with ram­pant de­lays in com­ple­tion of var­i­ous hous­ing project where the EMIS for prin­ci­pal re­pay­ment starts even be­fore com­ple­tion of the con­struc­tion for which no tax ben­e­fit is avail­able presently, the FM should con­sider al­low­ing the tax­payer this tax ben­e­fit, even on prin­ci­pal re­pay­ments that are made be­fore com­ple­tion of the con­struc­tion ei­ther in the year of pay­ment or on amor­ti­sa­tion ba­sis after com­ple­tion of the con­struc­tion.

Sim­i­lar tax ben­e­fit for in­ter­est paid dur­ing con­struc­tion is presently al­lowed to be amor­tised in five equal in­stal­ments from the year in which con­struc­tion is com­pleted.

I am sure the Fi­nance Min­is­ter will lis­ten.

The writer is a tax and

in­vest­ment ex­pert

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