The Interim Budget brought no cheer to home loan borrowers. There was no announcement on raising the existing home loan interest deduction limit of Rs 2 lakh per annum.
The deduction is available under section 24(b) of the Income Tax Act and can be claimed by only those under the old tax regime. In the case of a joint home loan, each borrower can individually claim the deduction.
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With the Reserve Bank of India (RBI) hiking the repo rate cumulatively by 250 basis points since May 2022, home loan borrowers have seen a rise in their interest burden. A hike in the deduction limit would have offered them some tax relief.
Another hope was that the government would extend the home loan interest rate deduction benefit to the new tax regime, too. But in line with its approach of simplifying taxation (having lower tax rates with fewer exemptions and deductions), the government did not do so.
Last budget plugged a loophole
Importantly, a change relating to home loan interest deduction which was introduced in Budget 2023, is set to take effect this year.
In Budget 2023 the government closed a big loophole being exploited by home loan borrowers. Many borrowers were claiming deduction for home loan interest under section 24 (b) to reduce their income tax outgo and at the same time, also adding this interest expense to their cost of acquisition for calculating (lowering) capital gains at the time of selling the house. That is, in effect they were claiming this deduction twice.
Also read: Personal Finance: Prepaying your home loan early on can save you lakhs
With effect from April 1, 2024, one can claim this deduction only once –interest cost that has been claimed under section 24 (b) cannot be included in one’s capital gains calculation.
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