As if the mental harassment of delayed delivery of a house is not bad enough, you could also be losing 85% of the tax benefit on your home loan, for no fault of yours. A tax deduction of Rs 2 lakh per year is allowed against payment of interest on home loans, if the house is acquired within three years of taking the loan.
In case the possession happens after three years, the permissible deduction falls to just Rs 30,000 a year -a reduction of 85%.
In the past couple of years most home deliveries have been delayed beyond three years from time of purchase, making the buyers ineligible for the tax deduction-a fact they would have not known at the time of taking the home loan.
Given the stress in the real estate sector, most builders are now committing deliveries after four years of booking, so home buyers lose out on a big chunk of the potential tax deduction. For people in the top income tax bracket of 30% (annual taxable income of Rs 5 lakh or more) the benefit resulting from this provision will drop from Rs 60,000 to Rs 9,000 a year.
On a home loan of Rs 50 lakh taken at 9% interest for 20 years the total loss through the entire repayment period will be Rs 8.81 lakh.
The three-year possession condition was introduced to expedite construction of projects. The deduction limit was raised from Rs 1.5 lakh to Rs 2 lakh in 2014-15.
The income tax department must address the issue in a way that home loan takers are not disqualified from availing of the benefit for no fault of theirs.
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