Proposed deduction for interest on loans for affordable housing - - Loan sanction period must be longer, deduction should be allowed to first time home buyer including families and without limit on cost of house.

[CA DEV KUMAR KOTHARI]

As per proposed section 80EEA a deduction up to ₹ 150K per year on account of interest on loan shall be allowed.

One of condition is that   the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020;

The Finance Bill was introduced on 05.07.19 and it will take few month in its implementation as an Act. Therefore about half of the period during which loan can be sanctioned will be period of uncertainty and  even if we assume that the Bill will be passed with 100% certainty, At least period from 01.04.2019 to 05.07.19 is such period during which one could not have expectation about such deduction.

Honorable FM is has in her mind housing for all by 2025. Therefore, the period for sanction of loans could be longer , say up to 31.03.2024.

This is because:

Planning a house for first time house owner is a long-term plan and it is difficult to  be ready with a plan to purchase house, having own contribution, having identified loanable house and having satisfactory conditions so that loan can be granted by banks and financial institutions.

In normal course even after identifying a house, it take long time for legal formalities for satisfying money lenders about eligibility of house, the borrower and guarantors.

Even for money lenders it will be time taking to formulate schemes and be ready to disburse loan.

Short duration allowed for sanction shall cause undue haste on part of all concerned. This can lead to wrong decisions.

It is really not understandable why such short period for sanction of loan is considered. We find that even in the present provision vide section 80EE, condition was that loan should have been sanctioned between 01.04.2016 to 31.03.2017.

A long-term perspective should be followed for simplicity in understanding and in implementation.

Another condition :  “…   being an individual not eligible to claim deduction under section 80EE,

This seems to be superfluous condition having no rational in the new proposal. Because under section 80EE loan was to be sanctioned between 01.04.2016 to 31.03.2017 and a person may be eligible for such loan but he might not have availed such loan. If he has availed loan, and he is owner of a house then he will not be eligible for deduction as per new provision.

Stamp duty valuation:

Condition of stamp duty valuation not exceeding ₹ 45 lakh is also not justified. This is because at many places very high stamp duty valuation are placed in zeal to garner more revenue by way of stamp duty, whereas real price was all along less furthermore at many places property prices have fallen but stamp authorities have not reduced prices.

Higher limit is desirable:

For first time house buyers, the planning is for a house for the family (including joint family in many cases). For example, in many cases we find that parents could not acquire a house because they preferred to educate children.  When children completes education and starts good earning and are eligible for availing housing loan, the preference will be for a suitable house in which parents and children can live together. Therefore, a higher budget is required. The limit of ₹ 45 lakh is low. The fact of first time buyer should itself be enough to allow this deduction. If one is able to buy a house for larger amount, the deduction is restricted to ₹ 150K.

The deduction should therefore be allowed to all first time home buyer.

Deduction should also be allowed to HUF if the HUF and any member of HUF is not owner of another house. In other words first time home buying  family should also be eligible for deduction.

Such interest:

Use of words ‘such interest’ means interest allowed under the section. Such interest shall not be allowed again under other provision. A clarity is required, which is missing in provision but is found only in budget speech that this deduction will be in addition to ₹ 200K (under head income from house property for self-occupied house)

 Budget proposal and related notes, explanations and budget speech are reproduced below with highlights, highlighted catch words, underlining, italicizing and coloring, added by author for easy analysis and understanding:

Statutory Provisions

FINANCE (No. 2) BILL, 2019

Insertion of new sections 80EEA and 80EEB.

25. After section 80EE of the Income-tax Act, the following sections shall be inserted with effect from the 1st day of April, 2020, namely:––

Deduction in respect of interest on loan taken for certain house property.

 ‘80EEA. (1) In computing the total income of an assessee, being an individual not eligible to claim deduction under section 80EE, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.

(2) The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2020 and subsequent assessment years.

(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:-

(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020;

(ii) the stamp duty value of residential house property does not exceed forty-five lakh rupees; (iii) the assessee does not own any residential house property on the date of sanction of loan.

(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.

(5) For the purposes of this section,––

(a) the expression “financial institution” shall have the meaning assigned to it in clause (a) of sub-section (5) of section 80EE;

(b) the expression “stamp duty value” means value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

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Notes:

Clause 25 of of the Bill seeks to insert a new sections 80EEA and 80EEB in the Income-tax Act relating to deduction in respect of interest on loan taken for certain house property and deduction in respect of purchase of electric vehicle.

The proposed new section 80EEA seeks to provide for deduction in respect of interest on loan taken for residential house property from any financial institution up to one lakh and fifty-thousand rupees subject to the conditions specified therein.

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These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020- 2021 and subsequent assessment years.

Tax incentive for affordable housing

In order to provide an impetus to the ‘Housing for all’ objective of the Government and to enable the home buyer to have low-cost funds at his disposal, it is proposed to insert a new section 80EEA in the Act so as to provide a deduction in respect of

interest up to one lakh fifty thousand rupees on loan taken for residential house property from any financial institution subject to the following conditions:

(i) loan has been sanctioned by a financial institution during the period beginning on the 1st April, 2019 to 31st March 2020.

(ii) the stamp duty value of house property does not exceed forty-five lakh rupees;

(iii) assessee does not own any residential house property on the date of sanction of loan.

It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

This amendment will take effect from 1st April, 2020 and will accordingly apply in relation to assessment year 2020-21 and subsequent assessment years.

From speech

109. Mr Speaker, Sir, my tax proposals will aim to stimulate growth, incentivise affordable housing, and encourage start-ups by releasing entrepreneurial spirits. It will also be geared towards promoting digital economy. I aim to simplify tax administration and bring greater transparency.

Affordable housing

117. For realisation of the goal of ‘Housing for All’ and affordable housing, a tax holiday has already been provided on the profits earned by developers of affordable housing. Also, interest paid on housing loans is allowed as a deduction to the extent of ₹ 2 lakh in respect of self-occupied property. In order to provide a further impetus, I propose to allow an additional deduction of up to ₹ 1,50,000/- for interest paid on loans borrowed up to 31^st March, 2020 for purchase of an affordable house valued up to ₹ 45 lakh. Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to ₹ 3.5 lakh. This will translate into a benefit of around ₹ 7 lakh to the middle class home-buyers over their loan period of 15 years.

4. Incentives for real estate

4.1 Deduction of interest for affordable housing: In order to incentivise purchase of affordable house, it is proposed to provide a deduction upto ₹ 1,50,000 for interest paid on loan taken for purchase of residential house having value upto ₹ 45 lakh. This shall be in addition to the existing interest deduction of ₹ 2 lakh.