Budget 2019: How much will extra Rs 1.5 lakh deduction on loan interest benefit home buyers?

Homebuyers will be able to avail an additional Rs 1.5 lakh deduction on home loan interest for properties worth up to Rs 45 lakh. This is over and above the existing deduction of up to Rs 2 lakh. Effectively, buyers of affordable housing can claim deduction of up to Rs 3.5 lakh.

This extra deduction can only be claimed on loans sanctioned during the current financial year. Also, the individual must not own any residential property on the date of sanction of the loan.

“Considering a majority of homebuyers are from the lower and mid-income segments, this tax benefit will boost demand,” said Ramesh Nair, CEO & Country Head, JLL India.


According to the FM, this deduction will translate into a benefit of around Rs 7 lakh for homebuyers over a loan tenure of 15 years.

A 15-year home loan of up to Rs 35 lakh at an interest of 8.7% translates into an interest outgo of Rs 2.99 lakh in the first year. At 9% interest on a 15 year home loan, the interest payment in the first year works out to Rs 3.12 lakh.

Effectively, most new homebuyers who have taken a loan this year will not be able to claim the entire deduction of Rs 3.5 lakh.

Further, this interest outgo will progressively reduce over the years. By the ninth year, the interest component would drop below Rs 2 lakh. Borrowers will not materially benefit from the additional deduction in later years.

“Even in the first year where the interest burden is the highest, you do not hit the revised Rs 3.5 lakh limit and the limit continues to shrink as the loan tenure progresses,” said Adhil Shetty, CEO, BankBazaar. As it is impossible to avail the full benefit, Shetty feels this benefit should have been extended to properties of higher values where the borrowing may be much higher.

Homi Mistry, Partner, Deloitte India, felt that since getting a property for less than Rs 45 lakh in metros is almost impossible, the provision would mostly benefit lower income borrowers in tier 2 and tier 3 cities. Even then, the total deduction of up to Rs 3.5 lakh will translate into tax savings of around Rs 70,000 in the first year for someone in the 20% tax bracket. The total savings over a 15-year tenure would add up to more than Rs 5.5 lakh.