real estate developers in pune

A Boon to first time buyers of homes costing less than INR 50

In order to incentivize and support the middle class first time buyers of homes costing less than INR 50 lakhs, the 2016-17 budget allows INR 50.000/- more (as compared to earlier provision) on interests on home loan towards deduction for calculation of taxable income. Earlier the cap on the tax deductible interest was INR 2 lakhs per annum and now the same is INR 2.5 lakhs per annum. However, this additional concession is available only if the total cost of the house is INR 50 lakhs and the home loan is not more than INR 35 lakhs. The incremental benefit can be best understood with an illustration.

Let the loan amount be INR 35 lakhs and the tenure of the loan be 20 years without any moratorium. The interest on the loan be 10 percent, which is about the current rate. The repayment starts immediately with 12 monthly payments every year for a period of 20 years. For such a scenario the EMI works out to INR 33,775.76. At the end of 20 years period the total repayment amount works out to INR 81.06 lakhs and out of this INR 46.06 lakhs is towards interest payment. All these can be found with the help of a mortgage calculator where in one is required to feed in the loan parameter.

From the mortgage calculator one can see that the interest component is INR is 3.47 lakhs in the first year and finally reduces to INR 21,126/- in the last year. For the first 10 years the interest amount is more than the INR 2.5 lakhs per annum, the stipulated cap by the government for the purpose of tax deduction. From 11 to 13 years it is between INR 2.5 to 2.0 lakhs per annum. Thereafter it reduces and finally becomes INR 21,126/- for the 20th year.

For a borrower in the 30 % income tax bracket the tax implications work out to the following. According to the earlier provision of up to 2 lakhs of interest deduction for tax benefit, the total tax savings over the period of 20 years was INR 10.21 lakhs. With new provision of 2.5 lakhs of interest deduction, the corresponding tax savings work out to INR 11.99 lakhs. Thus this budget provides an incremental benefit of INR 1.78 lakhs; this is quite an amount.

The calculation is indicative and gives order of magnitude of savings. Interest exemption is permissible only after taking possession of the house. Projects do require some construction time and interest paid during that period can only be availed in 5 equal installments in the next 5 years. Thus it may not be possible to avail tax benefit on all the interests paid during the construction period. Hence it is ideal to go for projects nearing completion to avail maximum tax benefit. Of course, this will entail bigger and more concentrated payment of own margin money.

The government wants the benefit to be available only to genuinely needy, thus the scheme is restricted to first time home buyers and also limited to values of home less than 50 lakhs and loans not exceeding 35 lakhs. It s so structured that only the needy can benefit and the well off do not usurp it.

This will make the developers in Pune and the builders around Pune to tweak their projects to bring the entire cost within 50 lakhs. Builders in Pune will come up with compact 2BHK homes in high cost areas and regular 2BHK projects in low cost areas. Pune will witness a shift from 3BHK to 2BHK homes. Areas in the neighborhood which are low in cost and are able to offer regular 2BHK and 3 BHK houses will see a greater demand. Grab the opportunity before the rush sets in and buy your flat.