According to the Section 24(1) of the Income Tax Act, a deduction of Rs 2,00,000 against the payment of interest on home loan is allowed provided the house is acquired or possession is taken within 3 years from the end of the financial year in which the fund is borrowed. In other cases, the maximum deduction allowed is only Rs 30,000.
Thus, if a buyer wants to avail the benefit, he should buy in a project which is nearing completion and possession secured within three years of taking the home loan for the purpose.
With project delays being the norm–owing to several reasons–the Centre must amend Section 24(1) of the I-T Act, which stipulates that possession of a house be secured within three years from the date of availing the home loan, which defeats the very purpose of allowing homebuyers tax benefit
But if you buy a house to avail the tax benefit and the possession could be secured after three years of taking the home loan for the purpose, you will lose substantially on the benefit.
If your income is in 30% tax bracket–that is more than Rs 10 lakh-your benefit will come down from Rs 60,000 per annum to Rs 9,000 per annum. If your income is in 20% tax bracket, your benefit will come down from Rs 40,000 to Rs 6,000 per annum while, for people in the 10% bracket, it will be reduced to Rs 3,000, from Rs 20,000 per annum.
If a buyer borrows Rs 50 lakh to buy a house, the in terest outgo in the first year, at the rate of 9%, will be around Rs 4.46 lakh and, in subsequent years, it will continue to fall. Only in the 16th year would the interest outgo fall below Rs 2 lakh.
Therefore, for the first 15 years, the buyer can avail a tax benefit of Rs 60,000 per annum if Rs 2,00,000 deduction against the interest payment is allowed. But if the possession has been secured only after three years, his tax benefit will come down to Rs 9,000 per annum.Thus, homebuyers lose Rs 51,000 per annum during the first 15 years. After that it will narrow down. The total loss for a person whose income falls in 30% tax bracket in the entire repayment period of 20 years will be Rs 8.81 lakh.
Owing to several reasons, delivery is given only after three years of the launch of a project in most projects.Today, builders are committing deliveries of apartments only after four years of their launch. Thus, homebuyers who buy apartments at the time of launch of a project will not qualify for the tax benefit against the interest payment on home loan.
Vikas Vasal, partner in KPMG, said that the provision was introduced with three years possession condition to expedite the construction of projects. But, with most of the projects delivered after three years, homebuyers end up as big losers.
Therefore, if the government wants tax benefit to accrue to homebuyers, the clause should be amended.
Dinesh Kanabar, a senior tax consultant, said that the department must address the issue as buyers should not be disqualified from availing the benefit for no fault of theirs. He said in other similar situations, in Section 54 of the I-T Act, the department condones the delay in possession; otherwise, the government should issue a circular to this effect.