Why is a separate section for the home loan deduction needed?
With soaring house prices, it is nearly impossible for a young couple to buy their own home without taking out a mortgage. The average amount of home loans has also increased steadily in the past. Through this article, I want to call on the government to introduce a separate section to allow tax benefits for mortgage repayment and to amend income tax laws to streamline home loan deductions.
Current arrangement for repayment of the mortgage
Currently, according to Section 80 C of the Income Tax Act, an individual and a HUF are allowed to claim a deduction up to a maximum of ??1.50 per year for the repayment of the principal of the mortgage taken out to buy or build a residential house. This deduction is available with various other elements of a compulsory nature such as the contribution to the employee contingency fund, tuition fees, the life insurance premium in addition to various other voluntary elements like the PPF contribution, ELSS, the deposits of the elderly savings scheme, Sukanya Samradhi scheme, etc.
The principal amount of repayment is available for home loans taken out from specified institutions such as banks, housing finance companies. This benefit can also be used by employees receiving a mortgage from their employers, who are either a public sector company, a university, a local authority or a cooperative society, or any statutory authority or any company incorporated under ‘a central and state statute. , or a public company. This deduction can only be claimed after possession of the house or completion of construction.
Basis of recommendation
Article 80 C was introduced in 2003 with an initial limit of ??1 lakh and increased to ??1.50 lakh in 2014. If we want to make it proportional to the average inflation rate of 6% for 18 years, the amount of deduction available today should at least not be less than 2.85 lakh.
While the government did not increase the limit proportionally on the one hand, but on the other hand, more and more eligible items were added over the years and thus overcrowded the sphere. Items such as deposits in old age savings schemes, national pension system, fixed tax savings deposits, Sukanya Samridhi scheme, etc. are just a few examples that have been added over the years, expanding the scope of the global deduction available under section 80 CCE covering section 80C, 80CCC and 80CCD (2).
On a realistic basis, the home loan amount to be taken out has multiplied several times over the years due to soaring house prices. In some cases, mandatory items such as tuition fees, employee provident fund contribution and life insurance premium themselves exceed the limit of ??1.50 lakh and thus oust the amount of the principal repayment of the mortgage for which the taxpayer cannot claim any deduction.
In view of the above facts, I ask the Minister of Finance to exclude the deduction for mortgage repayment from section 80 C and to introduce a separate section to take this element into account. It will also inspire many fence guards to consider buying a property with a home loan and will help revive the real estate industry and also help the government realize the ‘Housing for All by 2022’ dream.
Additionally, due to rampant delays in project completion, the borrower has to start repaying the mortgage through the regular MIL even though possession has not yet been returned. I therefore urge the government to allow the deduction for mortgage repayment even in cases where possession is not given within the allotted time. A similar deduction, currently, for interest paid during construction, is allowed in five equal installments from the year in which construction is completed, up to the aggregate limit of two lakh for independent properties. I urge the finance minister to allow the depreciation deduction of 1/5 in addition to the two lakh deduction based on the amount of interest a home loan borrower has to pay.
(The author is a tax and investment expert and can be contacted at [email protected] The opinions expressed are his own.)
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