Budget 2023 Expectation: Will govt hike income tax deduction limit on home loan interest rate from Rs 2 lakh to Rs 5 lakh?

Budget 2023: There are several sections under the Income Tax Act that provide taxpayers with tax exemption. One among them is Section 24. Under Section 24, taxpayers can claim deductions of up to Rs 2 lakh on the interest paid on home loans.

Section 24, titled as "Deductions from income from house property" or 'Income from house property' is applicable in the following cases:

If taxpayers are renting out their house(s), then the rent received will be considered as part of their income

If taxpayers have more than one house, then the Net Annual Value of the houses, except the house they are living in, will be considered as their income.

If the taxpayer owns only one house and is residing in it, the income from house property will be considered as NIL.

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Deductions under Section 24

There are two types of tax deductions under Section 24 of the Income Tax Act:

Standard deduction: This is an exemption allowed to every taxpayer, where a sum equal to 30 per cent of the net annual value does not come under the tax limit. This is not applicable if the taxpayer is residing in their own house.

Interest on loan: If taxpayers have taken a home loan for purchase, construction or renovation of the house, whatever interest they pay on the principal amount of the loan is exempted from tax payment. The sub-clauses in this category are:

If the loan has been taken for a self-occupied property, then taxpayers can claim exemptions of up to Rs. 2 lakhs.

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If a taxpayer took a loan for purchase or construction (not renovation) of a property before actually buying or completing its construction, they can still claim the interest. One can seek deductions on the interest paid before the construction or purchase is completed, in five equal installments, from the year in which the house is bought or the construction is completed.

If the loan is taken for renovation or reconstruction of a house, taxpayers cannot claim tax exemption until the renovation is completed.

Anil Singhvi’s take

Zee Business Managing Editor Anil Singhvi has requested the government to increase the limit, considering the hike in interest rate on home loans and surge in the price of property. According to Singhvi, the limit should be increased from Rs 2 lakh to Rs 5 lakh.