Union budget 2019 announces additional tax benefit of Rs 1.5 lakhs on Home loans.

By Abhay Shah, Realty Quarter

The Finance Minister has proposed a tax benefit of Rs.1.5 lakhs in regard of the home loan made for the purchase of an affordable house up to the value of Rs.45 lakhs subject to certain circumstances in order to give impetus to the ‘Housing for All’ mission by 2022.  For self-occupied properties, this extra advantage includes in relation to the current advantage provided for Rs.2 lakhs, accessible under section 24(b), the total tax advantage given for home loans to Rs.3.5 lakhs.

Home loan limit criteria:

Lenders require the home buyer to contribute partly to the price of a house which is to be purchased while giving a home loan. This is called ‘margin money’ in banking language. The balance is the amount you can receive from a loan from the lender. A ‘loan to value’ ratio (LTV) is the ratio between the amount of the loan a purchaser can obtain and the value of a property. Lenders insist on the margin money, to have a buffer available with them, in case the market price of the property reduces, in future. This guarantees that the borrower has his shares in the property that he has bought.

If the home loan is taken from a bank, the new tax benefit on interest provided by the Finance Minister is accessible. A few years ago, some banks funded the full value of the house property, including the stamp duty and registration charges. This exposes them to very high risk, which results in significant danger of default in the event of a property price crash. The RBI has authorized the proportion of property value, to be lent by banks as home loans in India in order to prevent any incident such as the subprime crisis. Banks are currently permitted to lend up to 90% of the value of the estate for a home loan of up to Rs.30 lakhs. In the case of home loans above Rs.30 lakhs, lenders can only extend home loans up to 80% of the real estate value.