How Will the Hike in Tax Breaks on Affordable Housing Loans Benefit You?


  • Union Budget 2019 - Additional tax exemption of ₹1.5 Lakh proposed on interest paid on loan taken to buy affordable homes valued at up to ₹45 lakh
  • Additional tax exemption can reduce the tax liability or get it to zero!

The Finance Minister Nirmala Sitharaman has finally presented the Union Budget 2019 on the floor of the Lok Sabha. She announced a slew of tax reliefs across several sectors of the economy, including affordable housing. While delivering her maiden budget speech in Modi 2.0 regime, the Finance Minister announced that the government will provide an additional tax exemption of ₹1.5 lakh on interest paid on loans taken till March 31, 2020 to buy homes valued at up to ₹45 lakh. Interest paid on loan already garners a tax exemption of up to ₹2 lakh under Section 24 of the Income Tax Act. With the latest announcement, the total exemption goes to up to ₹3.5 lakh. “This will result in a total tax benefit of up to ₹7 lakh over a loan period of 15 years”, added Sitharaman.

Doubt Persists on the Sustainability of Additional Tax Exemption on Interest

The quoted lines keeping the total benefit of up to ₹7 lakh somehow leave one in doubt whether the additional tax exemption of ₹1.5 lakh on interest paid is applicable for only two financial years (2018-19 & 2019-20). Official confirmations are yet to come on the same. Maybe the debate on the budget session, which is slated to continue for a few more days, will give us a clarity on the additional tax exemption.

How Do Income Tax Exemptions Pan Out in Affordable Housing?

An individual gets income tax exemption on the principal component of a home loan under Section 80C of the IT Act, up to ₹1.5 lakh in a financial year. The tax breaks on interest component are hiked up to ₹3.5 lakh courtesy the additional tax exemption of ₹1.5. These tax breaks are first combined and then get subtracted from the gross annual income of an individual to compute the taxable income. Afterward, the taxman computes the tax liability as per the slab rates.

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The example below will help us grasp the concept better.

Example – You earn an annual salary of ₹9 lakh and are sanctioned a 20-year home loan worth ₹36 lakh for a house valued at ₹45 lakh on April 1, 2019. The rate of interest offered is 8.90% per annum. How much tax benefit can you avail in FY 2019-20?

As per the home loan EMI calculator, you will pay a total principal of ₹68,246 and interest of ₹3,17,661 in the first year of the loan. This implies that you can claim a full tax exemption on both interest and principal component as they are well within the limit in the first year of repayment. Adding to the deduction is the standard deduction of ₹50,000. So, the total deduction is estimated to be ₹4,35,907 (₹68,246+₹3,17,661+₹50,000).

S.NoIncome & Tax LiabilityAmount (In ₹)
1Gross Annual Income9,00,000
2Total Deductions4,35,907
3Income Post Deductions4,64,093
4 (2-3)Tax LiabilityNIL

As per the current laws, there’s a full tax rebate on annual income of up to ₹5 lakh post all the deductions. So, the ₹1.5 lakh additional tax exemption will help you get the tax liability to NIL in the first year.


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  • Home Loan Interest Rates February 2024
    Axis Bank8.75% - 9.15%
    Bank of Baroda8.50% - 10.60%
    Citibank8.75% - 9.15%
    HDFC8.50% - 9.40%
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