RBI's 50 bps Repo Rate Cut: Impact On Your Home Loan And Tax Benefits Explained
Last Updated:
Lower home loan interest rates also have a direct impact on tax benefits for homebuyers; Here's how
In a significant move aimed at boosting economic growth and supporting borrowers, the Reserve Bank of India (RBI) has cut the repo rate by 50 basis points (bps). This brings the repo rate down to 5.75%, the lowest in several years, signaling an accommodative stance by the central bank.
What is the Repo Rate?
The repo rate is the interest rate at which the RBI lends money to commercial banks in India. It is a critical tool of monetary policy that influences borrowing costs in the economy. When the repo rate is reduced, banks typically lower their lending rates, making loans cheaper for borrowers.
Impact on Home Loan Interest Rates
With a 50 bps reduction in the repo rate, home loan interest rates are likely to come down as well. Many banks have already announced cuts in their external benchmark-linked lending rates. This means that both new borrowers and existing borrowers with floating rate home loans can expect lower EMIs (Equated Monthly Installments).
For example, a home loan of Rs 50 lakh for 20 years at an interest rate of 9% would see a monthly EMI reduction of roughly Rs 1,500 if the rate drops to 8.5%.
Link to Home Loan Tax Benefits
Lower home loan interest rates also have a direct impact on tax benefits for homebuyers. Under the Income Tax Act, home loan borrowers can claim deductions on both principal and interest payments:
A reduction in interest rates means the total interest paid over the year also reduces. Consequently, the amount that can be claimed as a deduction under Section 24(b) might come down slightly.
Avinash Polepally, Business Head, ClearTax, explained that 'a 0.5% repo rate cut on a Rs 1 crore, 20-year home loan lowers EMIs by Rs 3,138 monthly, saving Rs 7.53 lakh in interest over the loan term, where interest is reduced to 8.00% from 8.50%. These tax benefits significantly reduce the net cost of borrowing. Floating-rate loans excel in a falling rate environment, offering substantial savings. Banks may adjust either EMI or tenure post-rate cut, impacting overall benefits."
Relief to Home Loan Borrowers
The RBI's decision to cut the repo rate by 50 bps offers welcome relief to home loan borrowers. While the lower interest payments could slightly reduce the quantum of tax deductions available under Section 24(b), the overall savings in loan servicing costs far outweigh this effect. It's an opportune time for potential homebuyers to step in, and for existing borrowers to explore refinancing or part prepayment to further reduce their interest burden.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Mint
39 minutes ago
- Mint
Anant Raj, DLF, Sobha fall up to 3% as realty stocks resume losing streak
Real Estate stocks in focus today: Domestic real estate stocks witnessed another round of selling pressure in Thursday's trading session, as the Nifty Realty index tumbled 2% to end the day at 1,006, extending its decline for the fourth straight session amid weak global cues and profit booking. All 10 constituents of the index ended the session in the red, with Anant Raj emerging as the top laggard, falling 3% to ₹ 556 apiece. It was followed by Phoenix Mills, Godrej Properties, DLF, Brigade Enterprises, Macrotech Developers, and Sobha, all of which declined over 2%. Real estate stocks had seen a stellar rally last week following the RBI's deeper-than-expected repo rate cut of 50 basis points and an unexpected CRR cut of 100 basis points. The move boosted investor sentiment, as lower interest rates potentially spur residential demand across major cities and ease borrowing costs for developers, aiding project financing and expansion. Following the RBI's double bonanza on Friday, the Nifty Realty index jumped 5%, emerging as the top-performing sector. In fact, the stocks had already been on a strong upward trajectory ahead of the RBI MPC meeting, driven by expectations of a continued rate-easing cycle, a trend that only accelerated after the policy announcement. From its April lows, the index has rallied 31%, making the real estate sector one of the biggest turnaround stories of 2025. However, the sharp gains may prompt investors to book profits, contributing to the ongoing decline in stock prices. Indian stock markets came under significant selling pressure in today's session, with broad-based declines triggered by weak global cues that weighed on investor sentiment, sending the Nifty 50 and Sensex down over 1%. Tensions between the US and Iran flared up after recent media reports suggested that the US is preparing a partial evacuation of personnel in the Middle East, following Iran's threat to strike US bases if nuclear negotiations fail. Further pressure came as US President Donald Trump announced plans to send formal letters to key trading partners within the next one to two weeks, outlining unilateral tariffs aimed at pressuring countries into trade agreements. Despite the tough rhetoric, US Treasury Secretary Scott Bessent signaled a potential extension of the current 90-day pause on reciprocal tariffs for countries showing 'good faith' in ongoing trade talks. While Trump said a framework on tariff rates had been reached to revive the fragile trade truce with China, the lack of specifics kept markets on edge, and China has yet to officially confirm any details about the trade deal. Even as the framework is being finalized, Commerce Secretary Howard Lutnick said on Wednesday that U.S. tariffs on Chinese imports would remain at current levels. Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
&w=3840&q=100)
Business Standard
an hour ago
- Business Standard
Tier-2 housing supply falls 35% in Q1 2025, affordable segment hit hardest
New housing supply in India's top 15 tier 2 cities fell by 35 per cent year-on-year (Y-o-Y) to 30,155 units in the January–March quarter (Q1) of 2025, compared to 45,901 units in the same period last year, according to a report by real estate data analytics firm PropEquity. This drop coincided with a steep 54 per cent decline in affordable housing supply—defined as units priced under ₹50 lakh. Affordable housing sees sharpest fall According to the report, the number of units priced under ₹50 lakh declined to 7,124 in Q1 2025 from 15,420 a year ago, with their share in total supply falling from 33 per cent to 24 per cent. In particular, state capitals recorded a staggering 90 per cent drop in supply of homes in this price segment, the firm noted. Mid-range homes hold share, premium sees drop Meanwhile, homes in the ₹50 lakh to ₹1 crore price range saw a comparatively mild 12 per cent decline in supply, though their share rose markedly from 36 per cent to 48 per cent this quarter. Homes priced between ₹1 crore and ₹2 crore witnessed a 17 per cent Y-o-Y increase in new supply, with their share rising from 18 per cent to 23 per cent. In contrast, units priced above ₹2 crore saw a sharp 73 per cent decline, with their share dropping from 13 per cent to just 5 per cent. East, Central regions hit hardest Geographically, Eastern and Central India experienced the steepest declines in new housing launches—68 per cent and 66 per cent respectively—followed by North India at 55 per cent. Western and Southern regions were more resilient, with drops of 28 per cent and 26 per cent. Among the top 15 tier 2 cities, Bhubaneswar saw the sharpest fall in supply at 72 per cent, dropping from 2,804 units in Q1 2024 to just 772 units in Q1 2025. Nashik recorded the smallest decline at just 2 per cent, from 2,509 to 2,466 units. Developers prioritise premium projects Explaining the trend, Samir Jasuja, founder and chief executive officer (CEO) of PropEquity, said that developers were adopting a cautious stance and focusing on high-margin projects. 'Financially robust developers with strong balance sheets are looking to launch premium homes in order to increase their profit margin. As a result, supply of homes under ₹50 lakh has seen a consistent decline due to its unviability,' he said. Despite the downturn, Jasuja emphasised the opportunity tier 2 cities present, citing strong infrastructure development and government efforts to promote them as future growth centres. 'With home loan rates hovering around 8 to 8.5 per cent, the recent 50-basis-point reduction in the repo rate by the Reserve Bank of India will further lower borrowing costs and provide an impetus to the ₹50 lakh to ₹2 crore housing segment in tier 2 cities,' he added.
Indian Express
an hour ago
- Indian Express
Why Andhra Pradesh & Karnataka are fighting over mangoes
By an order issued by the district collector of Chittoor on June 7, the Andhra Pradesh government has banned the entry of juicy Totapuri mangoes from other states into Chittoor district, a decision that has put it at loggerheads with neighbouring Karnataka. Karnataka Chief Secretary Shalini Rajneesh, in a letter dated June 10, and Chief Minister Siddaramaiah, in a letter dated June 11, have asked their Andhra Pradesh counterparts — K Vijayanand and N Chandrababu Naidu, respectively — to roll back the order said to be causing significant distress to mango farmers in Karnataka. A juicy mango Totapuri, also known as Bangalore or Sandersha, is a mango cultivar grown in the bordering districts of Andhra Pradesh, Karnataka, and Tamil Nadu. I have written to Andhra Pradesh CM Shri @ncbn requesting him to withdraw the ban on the entry of Totapuri Mangoes from Karnataka into Chittoor district. This ban hurts thousands of farmers and traders. Cooperation between states is vital for the prosperity of our people. — Siddaramaiah (@siddaramaiah) June 12, 2025 Known for their elongated shape and distinct parrot beak-like tip (hence 'Totapuri'), the variety is valued for its juice and pulp. Totapuri mangoes are used aplenty in mango drinks manufactured and distributed across the country. Food and beverage processors, including multinational companies, buy these mangoes directly from farmers. Notably, Andhra Pradesh's Chittoor district is home to several mango processing and pulp extraction companies that procure Totapuri mangoes from local markets. District officials, with the support of revenue, forest, marketing and police departments, have banned Totapuri mangoes from Karnataka entering Chittoor. The reason: the mangoes from Karnataka are cheaper than ones being grown in Andhra Pradesh. 'Every year, the Andhra government announces the price at which processors should purchase Totapuri mangoes,' an Andhra Pradesh government source told The Indian Express. 'This year the state government has announced the price at Rs 8 per kg. Keeping in mind the low price and high supplies the government has agreed to provide an additional Rs 4 per kg to the farmers,' the source said. In Karnataka, however, the price is just Rs 5 to Rs 6 per kg, the Andhra Pradesh government claims. 'If we allow [Karnataka] mangoes to reach the Andhra Pradesh market, the processors will prefer these mangoes over ones grown in the state, which are priced higher. This will plunge Andhra farmers into distress,' the AP government source said. With 5.5 lakh tones expected to be procured, the government is set to spend around Rs 220 crore on these mangoes An escalating standoff 'This abrupt and unilateral move has caused considerable hardship to mango growers in Karnataka, particularly those in the border regions who cultivate Totapuri mangoes in substantial quantities. These farmers have long relied on robust linkages with Chittoor-based processing and pulp extraction units for marketing their produce,' said Siddaramaiah, adding that the ban 'is contrary to the spirit of cooperative federalism'. He further said: 'The current restriction has disrupted this well-established supply chain and threatens significant post-harvest losses, directly impacting the livelihoods of thousands of farmers'. Chief Secretary Rajneesh's letter echoed similar concerns. Notably, both letters said that Karnataka farmers may take retaliatory measures, including blocking of vegetable and other agricultural commodities' sales across the border from Andhra Pradesh to Karnataka, which would 'escalate inter-state tensions,' Rajneesh wrote. This standoff comes in the context of the two neighbouring states being ruled by parties sitting across the aisle in Parliament: while the Congress is in power in Karnataka, the Andhra Pradesh government is headed by the Telugu Desam Party (TDP), a key ally in the BJP-led National Democratic Alliance at the Centre. So far, the Andhra Pradesh government has not officially responded to the letters from Karnataka.
