Tax benefit comes to home loan takers. It has been proposed in the revised discussion paper for Direct Tax Code (DTC) that the existing system of deduction of interest payment till Rs 1.5 lakh on home loan from tax liability should be continued.

The earlier discussion paper released on August 2009 had said that all exemptions should be removed from the taxation system including the deduction of interest paid on home loan. If this had been implemented, it could have severely affected the home loan market.

The exemption limit on investments in certain instruments like PPF, pension funds and life insurance schemes has been increased to Rs 3 lakh from earlier limit of Rs 1.1 lakh. The Rs 1.5 lakh interest benefit on home loan would be a part of this Rs 3 lakh exemption.

Inspite of interest on home loan being treated in the same category and held as part of the Rs 3 lakh exemption, taxpayers are meant to benefit. It would be beneficial for many middle income tax payers who would have otherwise found it difficult to exhaust the Rs 3 lakh ceiling.

However, experts still suggest that the Government should consider interest payment on home loan as a separate category of deduction, as housing sector contributes to the GDP of the country.