A person in the 30% income tax bracket with a Rs 40 lakh home loan at 9% interest rate would, under the Rs 3.5 lakh interest exemption, will save Rs 105,000 in tax in the first year, against Rs 60,000 under the previous interest exemption of Rs 2 lakh.
Prasanna D Zore reports.
Finance Minister Nirmala Sitharaman’s Budget proposal, to hike the exemption from Rs 2 lakh to Rs 3.5 lakh on interest paid on housing loan for a unit bought before March 31, 2010, and costing under Rs 45 lakh, is likely to provide a huge fillip to the affordable housing segment.
Add the reduction in GST on affordable housing to 1% from 8% in March this year to the Narendra Modi government’s latest budgetary proposal and one gets a sense of how the affordable housing segment might shape up in the days to come.
Illustrating the benefits for affordable housing buyers, the finance minister in her maiden Budget speech in Parliament said, “This will translate into a benefit of around Rs 7 lakh to the middle class home-buyers over their loan period of 15 years.”
“By this proposal the finance minister has put 70% extra into the kitty of those buying an affordable house,” said Mayur Shah, managing director of Mumbai’s real estate firm Marathon Group and former chairman of CREDAI, MCHI.
“This is a huge benefit for home buyers. This will surely have a multiplier impact and boost demand for affordable housing,” he added.
Elaborating on the demand for a housing unit in the under Rs 45-lakh category, Shah says that 60%-70% of the 400 units built by the Marathon Group that could fall under the ‘affordable housing’ category on the outskirts of Mumbai, have already been booked.
Apart from making affordable housing more affordable by this increase in interest exemption, one can also save on tax outgo, says Anil Rego, a Sebi-approved investment advisor and certified financial planner and founder of Right Horizons, a Bengaluru-based financial and wealth management company.
According to Rego, person in the 30% income tax bracket, going for Rs 40 lakh home loan at 9% interest rate in 2019 would, under the Rs 3.5 lakh interest exemption, save Rs 105,000 in tax in the first year, against Rs 60,000 tax she would have saved with interest exemption of Rs 2 lakh.
In effect, the Rs 3.5 lakh interest exemption leaves Rs 45,000 (Rs 1.05 lakh minus Rs 60,000) more in the hands of the purchaser in the first year.
The corresponding net tax saving for those in the 20% and 10% tax bracket for the first year works out to Rs 30,000 and Rs 15,000 per annum respectively.
If one were to calculate the total tax saved for all the three brackets over the tenure of a 15-year loan, then the 10% tax bracket borrower would save Rs 82,773, the 20% tax bracket borrower would save Rs 165,546, and 30% tax bracket borrower would save Rs 248,319.
Whatever your tax bracket, Rego has some interesting advice for you on how to use these savings for investing.
“Divide your total tax savings in these 15 years into a monthly SIP for 15 years and enjoy long-term returns this would earn for you.”
Photograph: Amit Dave/Reuters.