Home loans: Will tax rebates continue?

The present set of tax rebates and exemptions has found favour with individuals who have opted for home loans. On the interest rate front, the picture is just as pleasant with home loan companies offering loans at rates as low as 7 per cent making the middle-class dream of owning a house a reality. Effectively, with a person paying Rs 150,000 as interest annually as part of a home loan, the value of property a person can buy with that loan has increased.

What should happen?

The present sub-limit on principal for claiming tax rebate on repayment of home loans up to Rs 20,000 under Section 88 is a dampner for most taxpayers with a home loan. They would like to see a higher exemption limit under Section 88.

According to press reports, the Confederation of Real Estate Developers' Association of India (CREDAI) have sought the removal of Rs 20,000 exemption limit on principal, while retaining the overall ceiling of Rs 150,000 on interest.

On the other hand, the National Real Estate Development Council (NARDECO) wants to enhance the overall exemption on principal to Rs 70,000, the maximum possible limit eligible under Section 88.

What is likely to happen?

The Kelkar Committee has proposed to scrap Section 88 in which case all benefits associated with it, like exemption of principal component on home loan, will be nullified.

However, we believe that the budget proposals are likely to continue with the income tax exemption on interest and principal components in some manner.

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