Tax sop on home loans will boost demand, feel bankers

By: | Updated: February 26, 2015 9:10 AM

With the Budget expected to give a boost to the affordable houses and the housing sector in general..

With the Budget expected to give a boost to the affordable houses and the housing sector in general, bankers are hoping the government to raise tax deduction limit on home loan interest. Under Section 24B of the Income Tax Act, the maximum deduction allowed is Rs 2 lakh. This limit was raised from Rs 1.5 lakh in the last year Budget.

Exemption under Section 80C is also allowed for a principal repayment of Rs 1.5 lakh, in the case of a self-occupied house.

Retail credit has driven banks’ overall credit growth in face of a sharp slowdown in corporate loan disbursements over the last two years. The total housing loan credit book in India stood at approximately Rs 6.01 lakh crore, according to RBI credit data at the end of December 2014.

“Loans will increase substantially. Property prices have gone up, loan quantum is going up and, hence, many people are likely to opt for home loan. Property prices have gone up over the last two years in metros and mini-metros,” said SKV Srinivasan, ED and head of retail operations at IDBI Bank.


Given that banks have refrained from cutting base rates in last two years and with spreads on home loans remaining unchanged, the interest payment by customers has been high.

“There would definitely be some demand for home loans if the deduction limit is increased, because it’s an incentive for the borrowers, so whatever interest he pays, he will be getting exemption. Earlier as and when these kind of incentives were given, lending has increased,” a senior public sector bank official said.

Among banks, the largest home loan portfolio belongs to State Bank of India at Rs 1.5 lakh crore as of December 31, 2014, a growth of 13% year-on-year, followed by ICICI Bank with a home loanbook of Rs 84,425 crore.

Housing Development Finance Corp’s (HDFC) individual home loanbook stood at Rs 1.6 lakh crore, at the end of the third quarter of fiscal 2015.

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