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Buying a home for less than Rs 45 lakh? You can take advantage of the additional Rs 1.5 lakh tax exemption on home loans

If you plan to own a home under the 45 lakh affordable housing scheme, you can get an additional discount on the interest paid for affordable housing up to 1.5 lakh under Section 80EEA of the Income Tax Act.

To boost consumption amid a global pandemic, Finance Minister Nirmala Sithraman announced a series of measures for the real sector and homebuyers in the 2021 Budget. The affordable housing tax exemption has been extended for a year. In the July 2019 budget, the central government introduced an additional income tax deduction of ₹ 1.5 lakh for home loans for the purchase of affordable housings. Now, the eligibility for this tax deduction has provided till March 31, 2022. 

What does a homebuyer mean?

Homes with an estimated value of ₹ 45 lakh fall into the affordable housing category. If you plan to own a home under a 45 lakh affordable housing scheme, you can get an additional discount for interest paid for affordable housing up to 1.5 lakh under Section 80EEA of the Income Tax Act. The scheme will be in effect until March 31 of next year. It should be noted that the home buyer must not own any other residential property as of the date the loan is sanctioned to take advantage of this benefit.

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This is over and above the Rs 2 lakh tax exemption on home interest rates under Section 24 of the Income Tax Act. Therefore, new home buyers can enjoy a tax exemption of up to 3.5 lakh on interest rates on home loans.

Budget 2021: Other measures for home developers

To ensure affordable housing for migrant workers, the Minister of Finance also announced an extension of the tax exemption for an additional year for affordable rental housing projects. "For this, I propose to allow tax exemption for reported affordable rental housing projects," Sitraman said when presenting the budget.

The developers who are building the affordable rental housing project will also get a tax exemption because they have been availing for affordable housing projects. “The current provision of Article 80-IBA of the Law establishes that when the resident's gross income includes the profits and earnings derived from the development and construction of an affordable housing project, it is necessary, in accordance with certain conditions specified in that law, Allow the deduction of an amount equal to one hundred percent of the earnings. And the earnings from such businesses, ”according to the budget document. One of the conditions is that the project is approved by the competent authority after June 1, 2016, but on or before March 31, 2021.

To help migrant workers and promote affordable rent, the 2021 budget has proposed to allow deductions under Section 80-IBA of the Act for rental housing projects that are notified by the central government in the Official Gazette and meet the conditions as specified in the said notification

"Steps like a one-year tax holiday for affordable housing projects and a one-year extension of an additional interest deduction of up to Rs 1.5 lakh on an affordable housing loan will benefit all industry stakeholders and will boost investment, "said Krish Raveshia, CEO of Azlo Realty.

"A one-year extension of the 1.5 lakh tax deduction on the home buyer loan for affordable homes along with tax incentives for affordable home developers is welcome in real estate. This will continue to support the achievement of the" Housing for All ”Mission, Deepak Goradia, President of CREDAI MCHI.

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