Been waiting to have your own house for the first time, then maybe 2013 is the best time for you to do so. The budget has some good news for you. For the first time property buyers, the finance minister has extended an additional benefit of Rs 1 lakh on home loans up to Rs 25 lakh.
This deduction will be on top of the deduction of Rs 1.5 lakh allowed for self-occupied properties under Section 24.
Nonetheless the regulation is that the property should not cost more than Rs 40 lakh. This rule means a outsized number of buyers in metro cities will not be qualified for the added 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.
You are probably wondering if and how much tax you can save but the thing is the additional deduction will not last forever. From the time period of 2013-14 and 2014-15, this maximum span of two years is the only time you can claim it. It is known that interest rates on home loans today range between 9.5% and 11% so a buyer will be able to claim deduction for the entire interest. You would have to pay about Rs 2.48 lakh as interest in the first year if you take a Rs 25 lakh loan for 20 years at 10% interest,.
You can claim the entire amount as a deduction in 2013-14. The Rs 1.5 lakh under Section 24 and the remaining under the additional deduction are the entire amount you can claim. The remaining Rs 50,000 deduction can be availed of in 2014-15 if your loan is smaller and you pay only Rs 2 lakh as interest. A buyer can accumulate between Rs 10,000 and Rs 30,000 a year depending on his income slab although the cost of property is a blockade.
One more notice which would create after-effects to the real estate sector is the 1% tax deducted at source (TDS) on the transfer of immovable property with a market value of more than Rs 50 lakh.
This will add to the paperwork for buyers aside from the increase in transaction cost.
“A person would now need a TAN (Tax Deduction Account Number) to deduct tax on behalf of the central government. So once a buyer gets a TAN, only then can he purchase an immovable property. He is paying only 99% of the value to the seller and the balance 1% to the government,” says PranayVakil, chairman, Praron Consultancy.
New luxury projects will also become more expensive at the same time as the TDS will impact all property transactions, counting the resale property.
From 75% to 70% has been reduced to the rate of abatement on homes and flats of more than 2,000 square feet or costing Rs 1 crore.
“Effectively, this translates into an increase in service tax outflow, which means that luxury housing will now become even more expensive,” says Anuj Puri, chairman & country head, Jones Lang LaSalle India.