Raise Tax Exemption on Interest on Home Loans

India has been facing tough times off late -like most of other countries, in terms of coping with inflation. Finance Ministry as well as RBI have been losing their sleep over the same and have taken very dynamic approach to curb the same by raising interest rates and reducing liquidity from the system, resulting in stemming it temporarily. The idea has been to reduce money in the hands of the speculators who leverage arbitrage opportunities by borrowing cheap and hoarding supplies of whatever goods are available in the market viz. bullion, oil, commodities, real estate etc.

But in the process are squeezed the masses -who took loans to discount their future incomes and bought a car, home or just anything for actual consumption. Though rates on car loans and personal loans are mostly fixed (Thanks, God), home loan rates are floating (except for less than 1% people who got it for a lifetime fixed rate) and have increased from 7% to 12% i.e. if you bought a home with 25 lakhs loan 3 years ago, you now pay 3 lakhs as interest innstead of 1.75 lakhs. EMIs have gone up from Rs. 800 per lakh to over Rs. 1100 per lakh.

However, FM has refused to assuage this pain by not raising this ceiling for several years now on deduction available on interest paid towards home loan. Such a step could've indicated that he's concerned for real consumers as this benefit actually goes to people who've incomes shown in their IT returns and is available on benefit of one loan for one person basis (for self-occupied). People are already sitting on negative MTMs on their purchases (which may get worse in time to come on account of continuous bad news from US), and any further rise in rates may force India into its own subprime crisis with people losing affordability to pay for their own homes. New buyers are also discouraged as even in 2nd tier cities, a 2 B/R flat would be upwards of 25 lakh as compared to 8-10 lakhs in 1999 since when 1.5 lakh ceiling is applicable. Thus, FM has not been able to keep pace in terms of its own thought process of benefitting real users. Maybe, this ceiling can be different for different cities as is the case with HRA.

Though some steps have been such as reducing risk weightage on loans upto 20 lakhs, but one hardly finds a difference of more than 25 bps in loan rates. It could mean that Homefincos are actually not passing on the benefit or there actually isn't any.

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