Raise home loan deduction limit to Rs 5 lakh in Budget 2024, say homebuyers, realtors

The principal component of your equated monthly instalments (EMIs), qualifies for deduction under section 80C of the Act, while the interest portion (in respect of a self-occupied property) gets you a further deduction of up to Rs 2 lakh, under Section 24b of the Act.

The finance minister will present Budget 2024-25 today. Among various anticipated changes, one of the most awaited is the government's consideration of homebuyers' and industry stakeholders' demand to enhance the home loan interest deduction limit under Section 24(b) of the Income Tax Act, 1961. This expectation arises from the significant rise in property prices and home loan amounts over the past few years, which have rendered the current deduction limit, unchanged for a long time, increasingly inadequate.

Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution Pvt Ltd, a loan distributing firm, believes that the deduction limit against home loan interest should be enhanced to Rs 5 lakh from Rs 2 lakh currently. “This move would provide a significant relief to homebuyers, making housing more affordable and stimulating growth in the real estate sector. The average property prices and home loan amounts have increased significantly since this limit was last revised. Raising the deduction limit would help homebuyers manage their finances more effectively amidst rising costs,” said Kapoor.

The current deduction limit

Income tax deductions help in bringing down the tax liability, with deduction on home loan being one of the major deductions available to taxpayers under the old income-tax regime. The principal component of your equated monthly instalments (EMIs) qualifies for deduction under section 80C of the Act, while the interest portion (in respect of a self-occupied property) gets you a further deduction of up to Rs 2 lakh, under Section 24b of the Act. For rented properties, there is no upper limit on interest deduction, but the net loss from house property that can be set off against other income is restricted to Rs 2 lakh.

However, the last time the home loan interest deduction limit was revised was in 2014, when it was increased from Rs 1.5 lakh to Rs 2 lakh. Since then, the real estate market has seen a substantial escalation in property prices. The average cost of homes has surged, driven by factors such as increased demand for housing and the rising cost of land and construction materials. Consequently, the amount borrowed by homebuyers has also risen, leading to higher interest payments.

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For many homebuyers, particularly in metropolitan areas, the interest component of their home loan repayments far exceeds the current deduction limit. This results in a heavier tax burden, diminishing the financial benefits of homeownership. Therefore, the demand for increasing the deduction limit against home loan interest is strong.

Industry expectations

Enhancing the deduction limit would not only benefit individual homebuyers but also stimulate growth in the real estate sector. The real estate industry is a crucial driver of economic activity, contributing significantly to GDP and employment. Increased tax relief would make housing more affordable, encouraging more people to invest in property. This, in turn, would boost demand for housing, leading to increased construction activity and related economic benefits.

Industry experts and stakeholders have been vocal about the need for this revision in the deduction limit. The National Real Estate Development Council (NAREDCO) has put forth several recommendations for the real estate sector ahead of the Union Budget for FY 2024-2025. “Under Section 24 of the Income Tax Act, interest on loans for self-occupied property is limited to Rs 2 lakh. Given the rising property prices and interest rates, NAREDCO proposes increasing this limit to at least Rs 5 lakh,” NAREDCO said in its statement.

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Additionally, the current limit for setting off house property losses against other income heads under Section 71 is Rs 2 lakh, which is seen as discouraging for the industry where rental income is a major source. NAREDCO recommends removing this limit or increasing it to Rs 5 lakh.
These sentiments are echoed by numerous other industry leaders who believe that raising the home loan interest deduction limit is essential for maintaining the growth momentum in the housing sector.