Make Home Loans in tune with the times

Current exemption limits on home loans and principal repayment have not been updated with rise in real estate prices. It is Time for a re-look.

The government wants the middle class to own houses but the tax incentives are largely on the lower side. Let me explain. Currently, the interest component on home loans is eligible for deduction up to Rs.200,000 per annum. In large cities like Mumbai, Delhi and Bengaluru, this limit is grossly insufficient. A 2 bedroom house in suburban Thane would cost about Rs.1 crore. If the borrower puts in a margin of Rs.15 lakhs and borrows the balance, his monthly EMI would be around Rs.90,000 on a 20 year loan. Out of the annual EMI of Rs.10,80,000/- close to Rs.6.5-7 lakhs will be paid as interest and the balance will be principal repayment. But the interest rebate that he gets under Section 24 will be just about Rs.200,000. This acts as a major disincentive for people to invest in buying houses in the metropolitan cities. In a nutshell, the limits are grossly insufficient from a house buyer’s perspective.

So what can the budget do? To begin with, the limit of exemption on interest should be raised from the current limit of Rs.200,000 to Rs.10,00,000. Back in the early 2000s, the FM did effect a five-fold increase in this limit from Rs.30,000/- to Rs.150,000/-. That gave a tremendous push to housing in India. It is time for Round-2 of the big push to housing. This will not only give a boost to housing, but also encourage the young and upwardly mobile to buy properties in urban centres.

Principal repayment on home loans is currently clubbed under Section 80C, along with insurance, PF and tuition fees. This budget will be the right time to extract home loan principal from Section 80C and give a separate limit of Rs.100,000 per annum. Combined with the higher interest exemption, it will give a major thrust to housing. Let us hope the Union Budget bites the bullet.

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