Budget 2024: Will Nirmala Sitharaman give borrowers a tax breather on home loan interest paid?

With Union Budget 2024 set for July 23, home loan borrowers are eagerly anticipating Finance Minister Nirmala Sitharaman's potential moves to address their long-standing demands for enhanced tax benefits. Amid rising property prices and credit costs, borrowers are looking for key changes that could provide much-needed relief and boost the housing market.

Topping borrowers' demands is an increase in the tax deduction on home loan interest under Section 24(b) of the Income-Tax Act, from the current ₹2 lakh to ₹5 lakh. Tax experts told BT that with high credit costs and soaring property prices, even in smaller cities, this adjustment is essential to stimulate demand for budget homes, which have seen a slump in sales post-pandemic.

Currently, home loan principal repayments fall under Section 80C, which includes numerous other deductions. Experts argue for a separate section dedicated to home loan principal repayments, with a tax deduction limit of up to ₹3 lakh. This change could simplify the tax-saving process for borrowers and encourage more people to invest in housing.

Previously, Section 80EEA offered first-time homebuyers a deduction of up to ₹50,000 on home loan interest, a benefit that ended after March 2022. Experts believe that bringing back this deduction would reduce the cost of homeownership and support the government's goal of making housing accessible to all.

The Credit-Linked Subsidy Scheme (CLSS), which ended in March 2022, provided subsidized interest rates for housing loans to economically weaker sections and middle-income groups. Financial experts emphasized that reinstating CLSS in the upcoming budget could incentivize more homebuyers in the affordable housing segment.

With significant changes introduced in the previous fiscal year, such as an increased tax rebate limit from ₹5 lakh to ₹7 lakh and a reduction in the number of tax slabs, tax experts suggest making the new regime more appealing by introducing tax deductions on home loan interest for first-time homebuyers of self-occupied properties.

There is a strong push to revise the qualifying cost of affordable properties, especially in high-cost cities like Mumbai. The current limit of ₹45 lakh is seen as insufficient given the steep property prices. Tax experts pointed out that raising this limit to ₹65 lakh could better reflect market realities and make subsidies under the Pradhan Mantri Awas Yojana (PMAY) more impactful.