Buying a home is the dream of every individual and a once in a life-time experience. It is also an expensive dream to fulfill. Today, with attractive home loan offers, rising incomes, and more working couples than some years ago, the dream becomes a " family" effort.
So, if you are thinking of buying your dream house by availing a home loan facility, then it' s time to get smart from the tax planning perspective. A joint (husband and wife) application for a home loan has the following advantages:
1. Entitles the couple to a bigger home loan (assuming both are working)
2. Each applicant is entitled to tax benefits - Rs 1 lac for principal repayment u/s. 80C and Rs 1.5 lacs for the interest payment u/s. 24 of the Income Tax Act. This leads to enormous tax savings
The following table illustrates the tax savings of the household:
|
| Single Home Loan | Joint Home Loan |
| Salary Mr. A | 650,000 | 650,000 |
| Salary Mrs. A | 650,000 | 650,000 |
| Loan Amount | 5,000,000 | 5,000,000 |
| Tenure (yrs) | 20 | 20 |
| Rate of Interest p.a. | 9.50% | 9.50% |
| Annual Principal Paid | 88,047 | 88,047 |
| Annual Interest Paid | 471,232 | 471,232 |
| Interest availed for tax benefit | 150,000 | 300,000 |
| Principal availed for tax benefit | 88,047 | 88,047 |
| Tax Paid by Mr. A | 36,391 | 45,195 |
| Tax Paid by Mrs. A | 96,000 | 42,195 |
| Total Tax | 132,391 | 87,390 |
| Household Savings |
| 45,000 |
In the light of the benefits offered, availing a home loan through a joint husband and wife application is definitely worth it if you are buying your first house, as it saves your hard earned money from being additionally taxed. But if the proposed Direct Tax Code (DTC) goes through, then this benefit would no longer be available.
Further, as per the present Income Tax Act, if you are seeking a home loan to buy your second house from the tax planning perspective, it's not worth it as the second house will be treated as " deemed to be let out property" and would be taxed as per the prevailing market value of rentals. And if the house has been actually let out, the rental income will be brought to tax.
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Thanks & Regards
Aditya Kachru
Partner
RR Investors Capital Services (P) Ltd.
Mobile: 0-9818269396
Delhi Office: 011-23273456
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Email : adityakachru_609@rrfcl.com
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