InvestorQ : Can you tell me if the EMI moratorium will impact the tax benefits that I get on my home loans currently?
Debbie Mascarenhas made post

Can you tell me if the EMI moratorium will impact the tax benefits that I get on my home loans currently?

Answer
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Crowny Pinto answered.
3 months ago


That is an interesting debate that has started off in the last few days. You must be aware that the government first announced a 3 month moratorium till May 31 but later extended this moratorium on EMIs to August 31. Borrowers will be able to postpone their EMI payments by 6 months although the pending interesting will still be charged.

The bigger question is how it will impact your tax breaks, especially since EMI on home loans is an important part of your tax planning. As per the income Tax rules there are two benefits in a home loan. There is Section 24 tax exemption up to Rs.2 lakh per annum on the interest paid on the loan and additional exemption on the principal component under Section 80C.

Tax experts have opined that the tax benefits on home loans may get impacted due to the EMI moratorium. The extant Income Tax rules stipulate that interest exemption will be available to the borrower irrespective of whether the amount is paid or not. That is because interest is on accrued basis. The issue is with the principal component.

Tax breaks on the principal portion will be available for exemption under Section 80C only if the amount is actually paid and not on accrual basis. This puts the borrower in a tight spot. The EMI moratorium will mean that while Section 24 benefits will be available, the Section 80C benefits may have to be foregone, at least for this financial year.