[ecis2016.org] With various items available for deduction under Section 80 C of the Income Tax Act, home owners are often unable to claim the tax benefits on home loan principal repayment. The upcoming budget should create a separate IT section for the same
Home owners constitute a major section of the tax payers. Consequently, there is a need to have a separate tax deduction, for the repayment of home loans taken for the purchase or construction of a house.
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The existing tax provisions on home loan repayment
As per Section 80 C of the Income Tax Act, you are allowed to claim a deduction of up to Rs 1.5 lakhs per year from your taxable income, for the repayment of the principal amount of a housing loan taken for a residential house.
The benefit is available, only if the money has been borrowed from certain specified entities belonging to the central government, state government, any bank, the National Housing Bank, Life Insurance Corporation, a public company or a cooperative society engaged in the business of financing the construction of a house. The benefit is also available, if the loan has been taken from your employer, which can be a public sector company, or university or college, or the local authority of a cooperative society, or any statutory authority or corporation established by any central or state act. The deduction is allowed, only with respect to the principal amount that is repaid after completion of the construction.
However, this deduction is available along with other eligible items of expenditure, such as life insurance premium, stamp duty and registration charges for a residential house and tuition fees for two children. It also includes items of investment, like contribution to Provident Fund and Public Provident Fund, investments in equity-linked savings schemes, National Saving Certificates, tax saving bank FDs and contribution to superannuation fund. This limit of Rs 1.5 lakhs, also covers any amount paid for buying an annuity under Section 80 CCC and any contribution made towards the National Pension Scheme under Section 80 CCD(1).
Suggestions that could lower the burden on borrowers
Initially, a limit of Rs 1 lakh was fixed in 2003 and it was subsequently increased to Rs 1.5 lakhs from 2014. The increase amounts to lower than 3% per year – even lower than the rate of inflation. Meanwhile, various items have been added to the list of eligible items. Therefore, in many cases, the contributions towards life insurance premium, provident fund, tuition fee for children, etc., itself exceed Rs 1.5 lakhs. Consequently, many tax payers are unable to claim the tax benefits on home loan principal repayment.
Read also : What is land tax and how to pay it online?
Moreover, the amount of housing loan that is needed, has increased, as the cost of residential houses have gone up significantly. Hence, the principal repayment on a housing loan often exceeds the limit of Rs 1.5 lakhs, set under Section 80CCE. In view of the overcrowding of Section 80 C, 80CCC and 80CCD(1) and need for larger home loans, the finance minister should provide a separate deduction for repayment of home loans, in the ensuing budget. A leaf can be taken from Section 80EE, under which a separate deduction was introduced in 2013, for interest on home loans for first-time buyers.
The FM could consider extending the deduction on home loan principal repayment, to cover money borrowed from anyone, including friends and relatives. Likewise, the tax payer should be allowed to claim tax benefits, even on principal repayments that are made before completion of the construction, in case the EMI has already started. Such benefit on interest paid during construction, is presently allowed to be amortised in five equal instalments.
(The author is a taxation and home finance expert, with 30 years’ experience)
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