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Budget: Rs 3 lakh I-T relief on home loan?
June, 18th 2009

In what can hold out hopes for lakhs of home owners, the urban development ministry is pushing a proposal to double the income tax relief on home loan interest payout to Rs 3 lakh, triple the exemption on payment of the principal amount and reduced interest rates for houses up to Rs 30 lakh.

Urban development minister S Jaipal Reddy raised the demand in a pre-budget meeting with finance minister Pranab Mukherjee on Tuesday arguing that I-T concessions would boost the recession-hit realty sector besides giving relief to households affected by the economic slowdown.

The ministry has also recommended that the income tax exemption limit om rental income be raised to 50% from the existing 30%.

The ministry, which is pushing a proposal to hike income-tax exemption available for interest payment on home loans to Rs 3 lakh a year, is also batting for raising the limit for exemption on repayment of principal amount to Rs 3 lakh.

Currently, taxpayers taking housing loans are eligible for I-T exemption on interest payment of up to Rs 1.5 lakh every year. Along with this, the repayment of principal amount up to Rs 1 lakh is part of investments eligible for benefit under Section 80(C) of the Income Tax Act.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom apartment in the metro cities costs anything between Rs 25 lakh and Rs 35 lakh. In a move to push demand in the housing sector, the UD minister also favoured cheaper loans for buying houses.

The ministry also demanded lowering of interest rate on small housing loans as part of the government's effort to stimulate the economy. "We should make arrangements for giving loans at 6.5% interest for houses in the below Rs 5 lakh category," Reddy said after his meeting with finance minister.

Reddy also argued for extending housing loans at the rate of 7.5% for houses costing above Rs 5 lakh and up to Rs 30 lakh. Presently, 7.5% rate is available for apartments priced up to Rs 20 lakh. The housing sector is on top of the UPA's agenda considering the huge demand-supply gap in cities and the sector's potential in generating employment.
The ministry also demanded that the real estate sector should be treated on a par with industry for all purposes, particularly lending norms like interest rate and risk perception for project construction finance.

The housing sector in the country has been hit hard by falling demand following a rise in interest rates. Besides lowering of home loan interest rates, the realty sector has been continuously pitching for greater tax benefit to stimulate the decline in demand.

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