Is the COVID-19 period, a right time to buy your dream house?

CS Shivam Singhal , Last updated: 17 October 2020
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The COVID-19 pandemic has dipped the Indian economy to a large extend. Sectors like Tourism, Banking, Real Estate are in danger zone. However, the Government and RBI have come out with various options for homebuyers, in order to boost the Real Estate and Banking Sector like:

Reduction in CRR and SLR, which has caused to reduce the bank loan interest rate; and
Extension in the Pradhan Mantri Awas Yojana (PMAY) for MIG-I and II categories peoples.

Now, the Homebuyers have four reasons to buy their dream home:

1. HOME LOAN RELIEF: Without talking too much, let's try to understand with the following examples:

HDFC Bank

	Interest @ 8.05% (before lockdown)	Current interest @ 6.95% (due to Covid)
Loan amount	Rs. 25 Lakhs	Rs. 25 Lakhs
Duration	20 Years	20 Years
Monthly EMI	Rs. 20,987	Rs. 19,308
Total savings in monthly EMI: Rs. 1,679/- Total savings in EMI (yearly): Rs. 1,679 * 12 = Rs. 20,148/-

Is the COVID-19 period, a right time to buy your dream house

State Bank of India

	Interest @ 7.95% (before lockdown)	Current interest @ 6.95% (due to Covid)
Loan amount	Rs. 25 Lakhs	Rs. 25 Lakhs
Duration	20 Years	20 Years
Monthly EMI	Rs. 20,833	Rs. 19,308
Total saving in monthly EMI: Rs. 1,525/- Total savings in EMI (yearly): Rs. 1,525 * 12 = Rs. 18,300/-

Note: Interest rate has taken out from the respective bank website.

2. PMAY RELIEF: “Housing for All” Mission to provide central assistance in the form of interest subsidy on housing loans for acquisition/ construction of houses for Economically Weaker Section (EWS), Lower Income Group (LIG), and Middle Income Group (MIG). Previously, the last date for MIG Category was 31st March 2020. Now, the Government has extended the scheme for MIG Category up to 31st March 2021. MIG Category is divided into two categories i.e. MIG-I and MIG-II Category.

The key parameters for each category are as follows:

Particulars	EWS	LIG	MIG-I	MIG-II
Family Income	Rs. 0 to Rs. 3,00,000	Rs. 3,00,001 to Rs. 6,00,000	Rs. 6,00,001 to Rs. 12,00,000	Rs. 12,00,001 to Rs. 18,00,000
Max Carpet Area (sq. m.)	30	60	160	200
Max Subsidy	Rs. 2.67 lakh	Rs. 2.67 lakh	Rs. 2.35 lakh	Rs. 2.30 lakh

EXAMPLE: The borrower avails a loan for Rs. 25 Lakhs and the subsidy works out to Rs. 2,35,000. The amount (Rs. 2,35,000) would be reduced upfront from the loan (i.e., the loan would reduce to Rs. 22,65,000) and the borrower would pay EMIs on the reduced amount of Rs. 22,65,000.

However, the following things must be taken in mind before applying for PMAY:

The beneficiary family should not own a pucca house either in his/her name or in the name of any member of his/her family in any part of India.
The beneficiary family should not have availed of central assistance under any housing scheme from the Government of India or any benefit under any scheme in PMAY.
The beneficiary family will comprise of a husband, wife, unmarried sons, and unmarried daughters. However, an adult earning member and a married son or married daughter shall be treated as a separate household.

3. GST RATES: On the GST aspect, let's try to understand the GST rates with the following table:

Property Type	GST rate till March 2019	GST rate from April 2019
Affordable housing*	8% with ITC	1% without ITC
Non-affordable housing	12% with ITC	5% without ITC

*Definition of affordable housing: Only those flats with a carpet area of 60 sq. m. in metros cities (i.e. Delhi-NCR, Bengaluru, Chennai, Hyderabad, Mumbai, and Kolkata) and 90 sq. m. in non-metros cities falling under the Rs. 45 lakh cap is affordable housing.

4. INCOME TAX ASPECTS: Interest payable on loans borrowed for the purpose of acquisition or construction of housing property can be claimed as deduction under section 24(b) of the Income Tax Act, 1961. However, the total interest deduction cannot be more than Rs. 2 lakhs.

Interest in pre-construction period: Interest payable on the loan for the period prior to the previous year in which the property has been acquired or constructed (pre-construction period) can be claimed as deduction over a period of 5 years in equal installments commencing from the year of acquisition or completion of construction.

Note: ‘Pre-construction period' is the period prior to the previous year in which property is acquired or construction is completed.

Interest for the year in which construction is completed/ property acquired: Interest relating to the year of completion of construction/ acquisition of property can be fully claimed in that year irrespective of the date of completion/ acquisition.

For Example: Assume interest @ 7%.

Conditions
	Loan sanctioned	2020-21	Loan: Rs. 25 lakhs
	Completion of construction	2022-23	Interest for FY 2022-23: = Rs. 1,64,206
	Pre-construction period	2 years (2020-21 & 2021-22)	Total interest: Rs. 1,73,116 (2020-21) + Rs. 1,68,817 (2021-22) = Rs. 3,41,933
Eligible deduction u/s 24(b)
	Eligible deduction of interest in FY 2020-21	Not eligible	Nil
	Eligible deduction of interest in FY 2021-22	Not eligible	Nil
	Eligible deduction of interest in FY 2022-23	One-fifth of interest paid for the pre-construction period + Interest payable in FY 2022-23 (Maximum deduction: Rs. 2 lakhs)	68,387 [one-fifth of the amount referred in point (c)] + 1,64,206 [total amount refer in point (b)] = Rs. 2,32,593 So, the eligible deduction for FY 2022-23: = Rs. 2,00,000/-