Budget 2013: Will Property Become More Affordable Now?

If you are still waiting to buy your first house, the budget has some good news for you. The finance minister has extended an additional benefit of Rs 1 lakh on home loans up to Rs 25 lakh for first time property buyers. This deduction will be over and above the deduction of Rs 1.5 lakh allowed for self-occupied properties under Section 24. The catch, however, is that the property should not cost more than Rs 40 lakh. This rule means a large number of buyers in metro cities will not be eligible for the additional benefit. “This would mostly be helpful for people who want to buy a house in smaller cities or distant suburbs where the ticket size is lower,” says Niranjan Hiranandani, chairman of the Hiranandani Group. How Much Tax Can You Save? The additional deduction is not forever. It can be claimed over a maximum of two years—2013-14 and 2014-15. Given that interest rates on home loans today range between 9.5% and 11%, a buyer will be able to claim deduction for the entire interest. If you take a Rs 25 lakh loan for 20 years at 10% interest, you would have to pay about Rs 2.48 lakh as interest in the first year. You can claim the entire amount as a deduction (Rs 1.5 lakh under Section 24 and the remaining under the additional deduction) in 2013-14. If your loan is smaller and you pay only Rs 2 lakh as interest, the remaining Rs 50,000 deduction can be availed of in 2014-15. While the cost of property is a barrier, a buyer can save between Rs 10,000 and Rs 30,000 a year depending on his income slab (see table). Source: Online News.