rebate on housing loan

The government is unlikely to extend further tax benefits for home loan seekers as the proposal has not found favour with the committee of secretaries charged with drawing up the package, a government official familiar with the deliberations told ET. The interest paid on home loans, up to a maximum of Rs 1.5 lakh annually , is allowed to be deducted from the income of an individual while computing tax. A proposal to increase this limit to Rs 2 lakh annually had been put forth by a section of the government working on the economic stimulus package. The committee is expected to finalise its recommendations by next week, after which, they will be taken up by the Prime Minister’s Apex Committee on economic crisis, added the official. For an individual in the highest 30% tax bracket, the Rs 1.5 lakh rebate yields a saving of Rs 46,350 in taxes, including the 3% saving of education cess. If the limit were to be increased to Rs 2 lakh, the tax saving would increase to Rs 61,800 or over Rs 5,000 a month. Since this lowers the effective monthly instalment on home loans, the move was expected to revive interest in housing. There proposal has not found favour for two reasons, legislative and its effectiveness. The official said that any change in the income tax rebate could not be done through a simple notification; it would require a change in the Income Tax Act. Since the winter session of the Parliament ends on Tuesday, this change would have to be done through an ordinance which could then be ratified by the house along with the vote on account. But there is no precedent for effecting a major legislative change in the tax policy with the vote on account. The finance ministry and some other sections in the government are not in favour of the move as they doubted its effectiveness in providing a stimulus to the construction industry. The official said that the view was that this move will not spur buying of houses, which in the current situation of high property prices was contingent more on prices falling from their current levels. However, a final decision on the issue will be taken by the apex panel. 1 comments on this story.