Home loans: First time home buyers from Friday will get additional tax benefit for purchase of residential properties of value up to Rs 50 lakh. The Finance Bill 2016, which is likely to be approved by Parliament during the second half of the Budget session, provides for up to Rs 50,000 tax benefit on loan up to Rs 35 lakh taken for residential house.
The government’s proposals coming into force from Friday is aimed at promoting its ‘housing for all’ scheme and bolster the real estate sector which is facing a huge slowdown for last three-four years. “In furtherance of the goal of the Government of providing ‘housing for all’, it is proposed to incentivize first-home buyers availing home loans, by providing additional deduction in respect of interest on loan taken for residential house property from any financial institution up to Rs 50,000,
This incentive is proposed to be extended to a house property of a value less than Rs 50 lakh in respect of which a loan of an amount not exceeding Rs 35 lakh has been sanctioned during the period from the April 1, 2016 to March 31, 2017. “It is also proposed to extend the benefit of deduction till the repayment of Loan against Property continues
The proposed deduction is over and above the limit of Rs 2 lakh provided for a self-occupied property under section 24 of the Act. The tax incentive will encourage first-time home buyers and increase the demand significantly.
After the Finance Bill is passed by Parliament, the amendments in this regard in the Income Tax Act will take effect from April 1, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.
With a view to incentivize affordable housing sector as a part of larger objective of ‘Housing for All’, the Bill also propose to amend the Act so as to provide for 100 per cent deduction of the profits of an assessed developing and building affordable housing projects if the project is approved before the March 31, 2019.
The Reserve Bank of India (RBI) always keeps a tight check on the loan against property segment of the lending business. And rightly so. It is the reckless borrowing and lending in this segment that happened in the US that brought the world to the brink of economic disaster. However, in India, the case is different. A 30%-35% margin requirement ensures that lenders are safe and prevents asset bubbles from brewing. It is with such policies that a loan against property becomes an asset for the responsible borrower. Here are the reasons why this is so.
Benefits of Loan against Property
It is cheaper: A secured loan is always cheaper than an unsecured one. The obvious reason is that the lender has recourse to tangible property if you default. This is why loan against property can save you a lot of money in interest costs.
A 2%-3% drop in the interest rates can save you close to Rs5,000/- to Rs7,000/- per month (assuming a principal amount of Rs50 lakhs). You could use these lower interest rates to get rid of some of the expensive overdraft facilities or factoring for your business or for personal reasons like a marriage in the family.
It is versatile: A loan against property is available for almost any purpose that you may desire funds for. The lender will not ask too many questions about the usage of funds. This also reduces the amount of paperwork required by significantly. You may have to declare your intention about using the funds, but it is neither mandatory nor legally binding. In most cases, it is just for the lender’s knowledge, a mere formality.
It is easily available: When a lender has a tangible security backing their loans, they have very little to worry about. No wonder a loan against property is available at express speed. It usually takes less than a week from your first point of contact to having the funds in your loan account. Professional lenders may do it over a couple of nights.
However, here is a word of caution for prospective borrowers. A Property Loan is a good way to borrow at lower interests if you are in control of your finances, i.e., you are sure that you will be able to make the payments even in the worst conditions. Failure to make these payments can have very unpleasant consequences. Just like all financial instruments, it is a tool, use it wisely!
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