Are tax sops enough to make real estate investments appealing?

Rental yields offer better returns than most other investments because of the tax sops offered by the government

- Shipra Singh & Neil Borate

Homebuyers are a distressed lot. Their equated monthly instalments have been ballooning ever since a flurry of rate hikes by the Reserve Bank of India over the last one year. And many of them decided to immediately prepay part of their home loans, even if that meant breaking their fixed deposits and other investments. Take the case of Delhi-based lawyer Prasouk Jain, who saw his home loan interest rate jump from the sanctioned rate of 6.4% to 9.2% in just 15 months on the back of successive repo rate hikes. He, too, made a part-prepayment of the loan to mitigate the impact. He also negotiated with the bank for a lower rate of 8.4%.

Most homebuyers are now scrambling to make more prepayments. Jain, though, decided against it after doing some number crunching. Jain’s residential property earns him a handsome 7.36% rental yield. He claims a 30% deduction on this rental income. Separately, he can also claim the entire interest paid on the home loan as deduction (under section 24b) since the property is let out and is not occupied by him. To be sure, deduction on interest in a self-occupied property is capped at ₹2 lakh.