With the yearly budget announced, first time home buyers are cheering and breathing a sigh of relief. Arun Jaitley, the Finance Minister of India, has stated that first time home buyers are allowed an additional Rs. 50,000 income deduction on home loans on top of the allocated Rs. 2,00,000 on interest repayment and Rs. 1,50,000 on principal repayment.
This deduction is only viable for first time home buyers on loans up to Rs. 35 lakhs on houses whose value does not exceed Rs. 50 lakhs. With this the effective interest rate on a housing loan of Rs. 24 Lacs for a house costing Rs. 30 Lacs will work out to only 4.12% against a headline yield of 9.55%. This means that for only Rs. 2,000 more in the form of interest cost in lieu of rent, a family can buy a house instead of renting one and can create a real asset.
This is a blessing for people looking to buy their first home due to the rise in prices of housing units in recent times. An individual looking to purchase a home is able to claim the interest payments as tax benefits from their home loans, which are currently capped at a maximum of Rs. 2 lakhs under the head ‘Income from House Property’. Along with interest payment, part of the home loan EMI can be claimed as principal payment deduction, which is currently capped at a maximum of Rs. 1.50 lakhs under Section 80C.
This new rule has come as a boon for people looking to buy their first home and those in the process of applying for a loan. Home loans have never before been as attractive as they are now.