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February 28, 2001                                       Feedback  

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House warming ceremony for financial institutions

Our Banking Bureau

The Union Budget smiled at the housing industry for the fourth year in a row with the finance minister announcing increase in the maximum deductible amount for interest payable on housing loans from Rs 100,000 to Rs 150,000 annually. This will trigger a hefty credit offtake of housing loans.

The Housing Development Finance Corporation (HDFC), the premier housing finance institution, has witnessed a 40 per cent growth in retail housing finance loan offtake previously. This will go up further, analysts said.

Individuals in the highest tax bracket of 30 per cent will benefit to the extent of Rs 15,000 in terms of additional reduction in their income. This follows the additional Rs 50,000 deduction in interest payable available as per section 24 (1)(vi) of the Income Tax Act.

Clearly the finance minister's proposal to hike the deductible amount is targeted at the middle class. If one takes an average housing finance interest rate of 13 per cent, an annual interest payable of Rs 150,000 would imply housing loans in the region of Rs 1.13 million.

Moreover, under section 88 permitting rebate on housing loans, an individual would now be entitled to a higher rebate of 30 per cent against the earlier 20 per cent. This raises the maximum permissible limit from Rs 4,000 to Rs 6,000.

Further, as interest rate on small savings has been brought down by one per cent in the budget, lower cost of funds would see housing finance companies reducing interest charges on housing loans.

All these spell a win-win situation for individuals. Reduction in interest rates would bring down the installment amount, and thereby enable individuals to go in for higher loans. In turn, with higher tax rebate on the interest amount, individuals in the 30 per cent tax bracket would be further benefited.

Source: Business Standard

The Budget 2001-2002 Special
The Rediff-Business Standard Budget Special

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