Spend, Save and Invest Smartly
A home is considered a once in a lifetime investment. True financial planning involves not only planning for the purchase of the house but also availing of the tax deductions in order to speed up the process of loan repayments. Housing is a sector which the Government maintains a prime focus on. Low cost housing and providing all citizens of India a roof over their head is one of the main agenda’s of the Government .If one is purchasing a house, repairing his house or renovating the house a tax benefit can be availed. So how can one avail of tax benefits in order to save on the home loan?
One can avail a loan for the construction of his house. Loan is available for the construction of a new home on a said property. The documents that are required in such a case are slightly different from the ones submitted for a normal Housing Loan. If one has purchased this plot within a period of one year before starting construction of the house, most HFCs will include the land cost as a Component, to value the total cost of the property. In cases where the period from the date of purchase of land to the date of application has exceeded a year, the land cost will not be included in the total cost of property while calculating eligibility.
These loans are given for implementing repair works and renovations in a home that has already been purchased, for external works like structural repairs, waterproofing or internal work like tiling and flooring, plumbing, electrical work, painting, etc. One can avail of such a loan facility, after obtaining the requisite approvals from the relevant building authority.
|Gross salary||INR 7 Lakhs|
|Loan amount||INR 35 Lakhs|
|Rate of interest||10.25%|
|Principal (Yearly)||INR 56,129|
|Interest (Yearly)||INR 3,56,162|
Table showing the yearly loan breakup
|Year||EMI (Year)||Principal (Year)||Interest (Year)||O/S Balance|
Mr Rakesh invests INR 1 Lakh per annum in a public provident fund in order to avail deductions under Section 80 C of the income tax act. The tax liability of Mr Rakesh can be calculated as follows :
|Salary of Mr Rakesh||INR 7,00,000|
|Less deduction under tax saving instruments||INR 1,00,000|
Calculation of Mr Rakesh’s tax liability if no home loan has been taken
|INR 0 - 2,00,000||0||0|
|INR 2,00,000-5,00,000||10%||INR 30,000|
|INR 5,00,000-6,00,000||20%||Mr Rakesh pays 20% of INR 1 Lakh = INR 20,000|
|Net Total||INR 50,000|
|Education Cess||3%||INR 1,500|
|Total tax liability without a home loan||INR 51,500|
If Mr Rakesh avails no tax deductions on his home loans he pays an income tax of INR 51500.
Now let us calculate Mr Rakesh tax liability after taking a home loan
|0 -2,00,000 (INR)||0||0|
|2,00,000-4,50,000 (INR)||10%||INR 25,000|
|Net Total||INR 25,000|
|Education cess||3%||INR 750|
|Total tax liability with a home loan||INR 25,750|
Mr Rakesh saves INR 51,500 – INR 25,750 or a net saving of INR 25,750 if he avails deductions under Section 24 on the interest component of the home loan.
|Tax paid without availing home loan benefits||INR 51,500|
|Tax paid after availing home loan benefits||INR 25,750|
|Net saving on tax after taking a home loan||INR 25,750|
There is a famous saying “ Home is where the heart belongs” .One can not only buy his own home but also save on tax .This is a double bonanza one can get. Think…Twin benefits..One’s own house as well as tax benefits. Use Tax Planning to achieve your needs.