The new Direct Taxes Code Bill 2010 has not brought good news to investors in real estate. However, while it has retained the provision to allow Rs 1,50,000 deduction from a persons taxable income against the payment of interest on the home loan taken to buy a house for his personal use, it has not allowed the same tax benefit on repayment of the principal, which was permitted so far. In fact, this is one of the most effective ways to save tax.
However, tax experts feel that repayment of the principal is normally crowded out to avail tax benefits since it is a part of Rs 1,10,000 limit under section 80C, which includes instruments like public provident fund, employees provident fund, tuition fees for two children, equity linked savings scheme and unit linked investment plan.
But, its omission will affect the lower-middle class tax payer, whose income is around Rs 5,00,000, and purchase of house through a home loan is his main investment. Consequently, they can't save tax under the new proposal.