YES
you could save up to Rs 40,000 more on your income tax outflow every year. Suppose your salary is Rs 30,000 per month. Any housing finance company will give you a loan of Rs 10 lakh. On a loan of that amount for 15 years, your monthly installments would be Rs 12,896. If the figure looks daunting, don't worry - your real outflow could be as little as Rs 3,000 per month, or even less. That is if you fall in the highest tax bracket. On a 15-year loan, you can save more than Rs 5 lakh in income tax (see Table). If you are in the 25 per cent or 20 per cent bracket, your saving will be correspondingly lower. It works like this. A monthly installment of Rs 12,896 translates into an annual outgo of Rs 1,54,752. Of this, the interest component is Rs 1,30,000, and the principal Rs 24,752. In last years budget, interest payment on a house loan up to Rs 100,000 and principal up to Rs 20,000 per year were exempted from income tax. If you are in the highest slab, you can save Rs 40,000 per year on an exemption of Rs 1.20 lakh. So, what do you have? In effect, an increase of Rs 3,400 per month in your net income, without your employer actually giving it! Add to that the rent that you will probably be saving every month, and your real outflow could be as little as Rs 3,000 per month - or even less. Isn't it time you thought of buying a house? A housing loan today is perfect for the middle-class salaried-income group, says S N Nagendra, area manager, HDFC. Earlier, the huge EMIs were scaring borrowers away. A family with a monthly income of Rs 20,000 would baulk at paying Rs 8,000 per month towards a house loan. Now, the burden looks less threatening, thanks to the tax break. But, there are many who still get touchy about a loan, especially a long-term loan. Despite the tax advantage, many borrowers rush to pay up their loan amounts before maturity and write off debts. Should you really do it? Not in the present environment. In fact, it pays to carry debt, particularly on a house loan. If you calculate your repayment schedule carefully, you can save a neat sum through tax rebates, and also get the benefit of inflation, as money gets cheaper by the year. The effective interest you pay is almost 40 per cent less than you thought. Together with inflation over 15 years, you really have a good deal going. But there is a time when you should think of prepaying your loan. On a 15-year, Rs 10,00,000-loan, for instance, it would make sense to pay off all the outstandings after the eleventh year, because the amount you save on interest payment is greater than the tax benefits you would get otherwise, by more than Rs 75,000! And the amount you have to repay - about Rs 5.5 lakh - would not be too much of a strain. Even the housing financiers agree with this. For one, the tax break on housing loans is unlikely to be discontinued. In fact, the housing finance companies are hoping for more sops in the next budget. Right now, it pays to borrow.
-cortesy popular website