EMI Moratorium: Opting for home loan moratorium? How will this impact your tax benefits?

The RBI governor recently further extended the EMI moratorium by 3 months till August 31, 2020. With this extension, borrowers would now get a six-month EMI holiday for dues falling between March 1, 2020, and August 31, 2020.

In a bid to give some relief to taxpayers and homebuyers amid the Covid-19 crisis, the Reserve Bank of India (RBI) had some time back directed all banks, NBFCs and housing finance companies (HFCs) to allow three months’ moratorium on the EMI payments of various retail loans, including home loans, as well as working capital loan installments which were due for payment between March 1, 2020 and May 31, 2020. The move was aimed at helping borrowers manage their short-term liquidity concerns.

However, as the Coronavirus pandemic is still far from over, the RBI governor recently further extended the EMI moratorium by 3 months till August 31, 2020. With this extension, borrowers would now get a six-month EMI holiday for dues falling between March 1, 2020, and August 31, 2020.

While borrowers facing financial crisis will definitely benefit from this move, they need to remember that this extension of loan EMIs is by no means a waiver on repayments as interest will continue to get accrued on the principal outstanding. So, one should think twice before availing this waiver.

Another concern, particularly of homebuyers, is that as home loan repayment is eligible for tax deductions, can opting for a home loan moratorium affect their tax benefits?

You must be aware that in respect of house property, the following tax benefits could be availed:

(i) Deduction for Principal repayment on housing loan u/s 80C of Income Tax Act, 1961; and
(ii) Deduction of interest on the outstanding principal u/s 24 of the Act.

Keeping this in view, “deduction of principal repayment on housing loan can be claimed only on actual payment. During the moratorium period, since there will not be any actual repayment of principal, deduction cannot be claimed under Section 80C. However, interest on home loan can be claimed as deduction even if it is not actually paid. However, it is essential to obtain interest payable certificate from the bank to this extent,” says Sudhakar Sethuraman, Partner, Deloitte India.

CA Naveen Wadhwa, DGM, Taxmann, says, “If an individual has availed the moratorium in respect of payment of housing loan EMI, the deduction available to him under Section 24(b) or Section 80EEA shall not be impacted. These deductions are available on paid or payable basis. Meaning thereby that if any interest on housing loan is payable during the year, the deduction shall be available to him even if the interest is not actually paid during the relevant year. However, deduction under Section 80C shall not be available as it is available for the actual payment made towards repayment of the principal amount of the housing loan.”

It, however, may be noted that interest on interest will not be eligible for any deduction. Also, the above interest should not be once again claimed as a deduction on payment basis.