Saturday, October 24, 2009

[Investors Please Listen] Home Sweet Home: Spouse + home loans = tax savings

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
(Rs)

Joint Home Loan
(Rs)

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

 
(Note: Assumption made that Home Loan and the EMI paid by husband and wife is  in the ratio 50:50)
 

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.

 

 

--
Thanks & Regards

Aditya Kachru

Partner

RR Investors Capital Services (P) Ltd.
Mobile: 0-9818269396

Delhi Office: 011-23273456
Gzb Office : 0120-4158904
Email : adityakachru_609@rrfcl.com

Y!Messenger ID: investorspleaselisten@ymail.com

Website: www.rrfinance.com

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Safe Harbor:

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