Rising Interest Rates And Budget 2025: What’s In Store For Home Loan Borrowers?

The rising interest rates and property values are further burdening home loan borrowers. Even though the government has consistently encouraged homeownership through tax breaks, the current exemption levels under Sections 80C and 24(b) of the Income Tax Act are insufficient, especially in metropolitan areas where housing costs have skyrocketed. The sector hopes to see an upward change of these constraints in the upcoming Budget 2025 to provide homebuyers with considerable relief and match benefits with the current conditions of the market. Budget 2025's emphasis on housing affordability will boost the demand for home loans and the real estate market, two major drivers of economic growth.

Only under the old tax system was it possible to claim deductions up to Rs. 2 lakh for interest on home loans for self-occupied property under Section 24 of the Income-tax Act, 1961 (henceforth referred to as "the IT Act"). This deduction is not available to taxpayers who choose the default new tax regime under Section 115BAC. This restriction has had a negative effect on individuals, especially those in the middle to lower income range, who depend on housing loans to buy property. For these taxpayers, housing loan interest frequently surpasses rental income, resulting in financial strain.

Relief for Homebuyers? Rising Costs Spur Demand for Tax Breaks in Budget 2025

"Home loan borrowers are under additional strain as a result of increased interest rates and property values. The present exemption limits under Sections 80C and 24(b) of the Income Tax Act are insufficient, particularly in urban regions where housing costs have increased, even though the government has constantly pushed homeownership through tax benefits. In order to give homebuyers significant relief and match advantages with the current state of the market, we hope to see an upward modification in these restrictions," said Sumit Sharma, Founder of Radian Finserv.

Easing Home Loan Strain: How Budget 2025 Can Unlock Real Estate Growth?

"Transparency and affordability in the industry can also be promoted by laws that restrict ancillary expenses such as insurance products that are packaged with home loans and incentives for the private sector to invest in affordable housing projects. Prioritizing housing affordability in Budget 2025 would increase demand for house loans and stimulate the real estate market, which is a key engine of economic expansion. Encouraging homeownership has a significant impact on millions of Indians' quality of life as well as the economy," commented Sumit Sharma.

How Housing Loan Relief Under New Tax Regime Could Spur Real Estate Growth?

As per CA(Dr.) Surana, "Under the current framework, Section 24 of the Income-tax Act, 1961 (hereinafter referred to as 'the IT Act') permits a deduction of up to Rs. 2 lakh for interest on home loans for self-occupied property, but this benefit is only available under the old tax regime. Taxpayers opting for the default new tax regime under Section 115BAC are unable to claim this deduction. Furthermore, losses under the head "income from house property" cannot be set off against other income or carried forward for future adjustment under the new regime."

This limitation has adversely impacted individuals who rely on housing loans for property purchases, especially in the middle-income group. Housing loan interest often exceeds any rental income earned, creating financial stress for these taxpayers.

"Thus, ICAI has proposed an amendment to allow a home loan interest deduction of up to Rs. 2 lakh under the new tax regime, along with the set-off of house property losses against other income and the carry-forward of unabsorbed losses for 8 years, which would provide substantial relief. It would also promote home ownership alongside supporting real estate investments. Additionally, the proposed measure would simplify tax compliance and encourage more taxpayers to adopt the new regime, contributing to economic growth and increasing government revenues," said CA(Dr.) Surana.

Conclusion

Due to rising interest rates, especially for first-time buyers and those with longer loan terms, this burden on borrowers could be lessened by policies like increased interest subsidies, tax breaks for interest payments, and incentives for fixed-rate loan products. The government can increase the affordability and accessibility of homeownership by tackling these issues, as per Sumit Sharma, Founder of Radian Finserv.