Non-metro home buyers to gain from deductions

Property price of up to Rs 40 lakh will get additional interest benefit of Rs 1 lakh

Individuals planning to buy their first house in smaller cities and towns can rejoice. The finance minister has offered a series of incentives which will enable them to purchase a house and utilise deductions in the bargain. However, the provision is short-term in nature. All purchases have to be made within the FY14 starting April 1.

Experts say the Rs 40 lakh value includes transaction taxes such as stamp duty and registration. Thus, if you purchase a flat for this amount, you have to pay 20 per cent or Rs 8 lakh upfront. For the rest (Rs 32 lakh), deductions can be utilised for loan amounts up to Rs 25 lakh.

Given the cap of Rs 40 lakh on the value of property, experts feel it would help people in the periphery of cities and in Tier-II and Tier-III locations.

Says Vipul Patel, director, Home Loan Advisors, "This will incentivise builders to construct houses below Rs 40 lakh in smaller towns, encourage first-time buyers to take the additional Rs 1 lakh deduction and could act as a cap on housing prices in these centres." Given that interest rates on housing loans below Rs 25 lakh are lower is an added incentive for the prospective home buyer, adds Patel.

Harsh Roongta, CEO, Apnapaisa, says the provisions are beneficial for the first-time buyer (ineligible if you have inherited a home) and for loans in the range of Rs 15-25 lakh.

Moreover, unlike existing provisions, the new deductions seem to allow even properties under construction. However, it is not clear whether one would be able to utilise the benefits in the second year (given the uncertainty), though there is a provision for that. The negatives, according to him, are the provision does not cover self constructed property and will lead to postponing of purchases to the new financial year.

On the reduction of abatement for buildings with flat sizes exceeding 2,000 square feet of carpet area, Roongta is of the view the increase in service tax on the same will not have much impact on the builder who passes it on to the end user. Ticket sizes of these flats tend to be in excess of Rs 1 crore and are unlikely to pinch a high net worth individual.
SOPS FOR BUYING

• Only first-time home buyers eligible
• Deduction on interest payments hiked to Rs 2.5 lakh from Rs 1.5 lakh
• Value of residential property not to exceed Rs 40 lakh
• Loan amount capped at Rs 25 lakh
• Loan must be taken in financial year 2013-14.
• If deduction is not fully utilised, it can be carried forward to the next year