Benefits for first-time homebuyers in India

To provide houses to all its citizen in the country, the government offers several incentives to the first-time homebuyers in India. In this guide, we would share details about the benefits you receive when you invest in your maiden property.

Table of Contents

Housing schemes for first-time homebuyers

Pradhan Mantri Awas Yojana

With an aim to provide housing to all in the country, the government launched the Pradhan Mantri Awas Yojana in June 2015. The central scheme provides monetary help to the first-time homebuyers for constructing houses under its Credit-Linked Subsidy Scheme and the Beneficiary-led Construction Scheme.

Under the Credit-Linked Subsidy Scheme, the government provides subsidy on home loan between Rs 6 Lakh and Rs 12 Lakh at lower interest rate for the construction of new houses to first-time homebuyers. This benefit is also available to those renovating their existing houses.

Pradhan Mantri Awas Yojana: Beneficiary categories

Beneficiaries under the PMAY list are divided into four categories, based on the annual income of the household.

Beneficiary	Annual income of the household
Economically Weaker Section (EWS)	Up to Rs 3 Lakh
Lower Income Group (LIG)	Rs 3 Lakh to Rs 6 Lakh
Middle Income Group-1 (MIG-1)	Rs 6 Lakh to Rs 12 Lakh
Middle Income Group-2 (MIG-2)	Rs 12 Lakh to Rs 18 Lakh

Source: Housing Ministry

Under the beneficiary-led individual house construction/enhancements scheme, the first-time homebuyers belonging to the EWS category can construct a new house with the central assistance of Rs 1,50,000.

State-run housing schemes for first-time homebuyers

In most state-run housing schemes, the prime condition to allocate a house is that the applicant must not own a house in his name. It means these housing schemes are meant specifically to cater to the first-time homebuyers in India. These include housing schemes launched by the DDA, the MHADA, the YEIDA, the Noida Authority, the Ghaziabad Development Authority, the Gurgaon Development Authority, the Chennai Development Authority, the Bangalore Development Authority, the Kolkata Development Authority, etc.

Tax benefits for first-time homebuyers

The first-time homebuyers enjoy tax benefits over and above the rebates offered to a general borrower.

Section 80C

Those repaying a home loan can claim deductions of up to Rs 1.50 Lakh per annum against home loan principal repayment under Section 80C. However, this section does not apply to home loan interest payment. The lock-in period to get this benefit is five years. It means that if you sell the property within five years from the date of possession, all the deductions previously claimed by you will be added back to your income in the year of sale.

This deduction is also available to the first-time buyers who pay stamp duty and registration charges during property purchase. This deduction can only be claimed in the year the actual payment is made towards these expenses. Both an individual and a HUF can claim this deduction in their income tax return.

NOTE: This benefit is available to the first-time as well as other category of homebuyers.

Section 24B

Section 24B deduction is available on home loan interest payments. This section provides deductions of varying amounts, based on the type of property and its use.

Rs 2 Lakh in a year: Borrowers can claim a tax deduction of up to Rs 2 Lakh in a year under section 24B of the Income Tax law if the property is self-occupied. Other conditions include the home loan should be borrowed on or after April 1, 1999. The house should be purchased or constructed within five years of taking the loan.

Rs 30,000 in a year: A borrower can claim only Rs 30,000 as tax deduction against interest payment if the loan has been taken for repair and renovation work. Deduction for interest on home loan will be limited to Rs 30,000 in the following circumstances, as well:

If the loan is sanctioned before April 1, 1999, to buy or build a property.
If the loan is sanctioned on or after April 1, 1999, but construction of the house is not completed within five years from the end of the previous year in which the loan was borrowed.

Entire interest paid in a year: The whole amount paid as home loan interest in a year will be allowed as a deduction for rented properties. This rule is applicable whether the loan is taken for a home purchase, home construction, home repairing or home re-construction.

NOTE: This benefit is available to the first-time, as well as other category of homebuyers.

Tax benefit under Section 80-EEA

Under Section 80-EEA, the first-time homebuyers get Rs 1.50 Lakh tax deductions on home loan interest payment.

To qualify for the benefit under this section, the house must also meet price cap and carpet area limit. To get Section 80-EEA benefit, the price of the property should not exceed Rs 45 Lakh. If a unit is located in a metropolitan city, its carpet area should not exceed 645 square feet (sqft). The carpet area of units in any other city must be 968 sqft. Benefits of Section 80-EEA are offered to home loans sanctioned between 1 April 2019 and 31 March 2022.

Tax benefit under Section 80-EE

Under Section 80-EE, additional deduction of Rs 50,000 on interest paid to the first-time buyers on loans sanctioned by banks between April 1, 2016, to March 31, 2017. Under this section, interest includes ‘any service fee or other charges with respect of money borrowed or processing fees’.

Note that the deductions under Section 80-EE is available only to individuals and not to HUFs, companies, etc. You must borrow from a bank, and not personal sources. However, it can be claimed until you have fully repaid the loan. Know that Section 80-EE was a one-time rebate, and it was relaunched during the Budget 2016-17 as Section 80-EEA. As a result, the old version is no more applicable.

FAQs

Who is the first-time homebuyer in India?

The first-time homebuyers in India are those who do not hold a property in their names.

What age is considered suitable for the first-time buyers?

There is no age cap defining the first-time homebuyers.

What is an affordable property?

According to the Reserve Bank of India, the cost of affordable residential property should be less than Rs 65 Lakh in metro cities and Rs 50 Lakh in non-metros. Prior to 2014, the limit was up to Rs 25 Lakh for metros and Rs 15 Lakh for non-metros. The central bank’s definition is based on the loan given by banks to those building houses and buying flats.

What are the tax benefits of the first-time homebuyers in India?

Under various sections of the Income Tax law in India, a first-time homebuyer can get tax deductions amounting to Rs 5 Lakh in a financial year. This deduction will be available if we included tax benefits offered under Section 80C (Rs 1.5 Lakh), Section 24B (Rs 2 Lakh) and Section 80-EEA (Rs 1.5 Lakh).

What is the government subsidy for the first-time homebuyers?

Under the Credit-Linked Subsidy Scheme, the government provides subsidy on home loan between Rs 6 Lakh and Rs 12 Lakh at lower rates of interest for the construction of new houses to the first-time homebuyers. This benefit is also available to those renovating their existing houses.

Do first-time homebuyers get cheaper loans?

No, banks offer their best rate to borrowers with an impressive credit score and credit history. Whether the buyer is a first-time buyer, it has no bearing on the interest rate.

Do first-time homebuyers pay lower GST on home purchase?

No, the GST rate on home purchase is based on the property price. The GST rate is 1% for properties that fall under the affordable category. For other properties, the GST rate is 5%.

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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