I have written earlier that this budget 2013 did not tinker much with income tax rates but thankfully has given incentive to buy your first house.
The new section 80EE:
Until now you could claim deduction on interest of your home loan to maximum of Rs 1.5 lakhs every year [under sec 24 of Income Tax Act]. With the new section 80EE, this limit has been enhanced by 1 lakh to Rs. 2.5 Lakhs, subject to following conditions:
- The loan needs to be taken in the financial year 2013-14 (i.e. between April 1, 2013 to march 31, 2014)
- The loan can only be taken from Banks or Housing Finance companies
- The loan should not exceed Rs. 25 lakh
- The house should not cost more than Rs. 40 lakh
- The borrower should not own any other property at the time of loan sanction
The additional deduction on interest payment of home loans can be claimed in FY 2013-14. In case you are not able to exhaust the limit in FY 2013-14, the balance can be claimed in FY 2014-15.
Also Read: Get Tax Benefit on both HRA and Home Loan
Sec 80EE – How does it work?
Presently, most banks and housing finance companies are offering home loan at 9.95% – 11% interest rates. Now if you buy your first house within Rs 40 lakh and take a home loan of Rs. 25 lakh from SBI at 9.95% for 20 years, the interest paid for 12 months in FY 2013-14 would be Rs. 2,46,886. You can claim Rs. 1.5 Lakhs under section 24 (the existing exemption for housing loan up to 1.5 lakh) and Rs 96,886 under the new section 80EE. This will leave you with a balance of Rs. 3,114 (Rs 1 Lakh – Rs 96,886) which you carry forward and can claim tax exemption in FY 2014-15.
The carry forward rule is good as you might not have been able to get the benefit of enhanced 1 Lakh limit if you took your home loan later in the year.
Sec 80EE – The Impact?
The new section 80EE would definitely encourage first time home buyers as they can additionally save up to Rs. 30,900 in taxes. With slow down in real estate, this would also encourage affordable housing to an extent which is the need of the hour.
Where can you buy?
Its very difficult to get a house in below Rs. 40 lakh in metros and tier 1 cities. So most of the options are in tier 2 and tier 3 cities. In case of NCR you might look in some pockets of Ghaziabad (Raj Nagar Extension, Crossing Republic, Delhi Bhopura Road), Noida Extension and Bhiwadi.
Also Read: Best Real Estate Investment Options in 2013