Advantage; Homeloan

Get a home loan save tax. Yes, I'll elaborate on it later but now some quick notes

  1. Get a home loan and if you live in it you get up to 1.5Lakh of interest deducted from your taxable income
  2. Get a home loan and rent it out; all the interest is delectable form your taxable income.
  3. Get your spouse to be a co-applicant on the loan both of you can enjoy the deductions.
  4. Up to 1 Lakh of Principle is delectable  from your taxable income (this falls under 80C so your PPF, ULIP, MF etc. is wasted) (Rented out or self-occupied)
Use the interactive Tableau dashboard (change the numbers in the boxes) to see how the numbers work for you and what saves most taxes for you.



You will notice that you will have better tax savings when you rent out your property and stay in a rented house yourselves. when you rent out all your Interest is tax deductible) But if you stay in it yourselves - you only get up to Rs 1.5 lakhs of deductible amount per year. [indirect message from the Gov: Buy a second home on a loan and get tax benefits]
On the other hand if your are a first time home owner and your loan amount is less than 25 lakhs (seriously, 25 lakhs?) you can avail an additional deduction of 1 lakh rupees per year on the interest paid.
So, in effect the Gov is telling you: if you are homeless, get a small / cheap house. If you already own a home Get a BIG FAT home loan to offset your income.

The tax-schemes certainly encourages you to spend on real-estate. I don't know why. Here are my reasons why the Gov should review its existing policy.


  1. Real-estate has long been a channel for black money to make its way in to the legal system. (If you cannot regulate it - do not encourage it)
  2. If the Idea of tax soaps is get a shelter for everyone, then do not offer tax soaps to second time buyers.
    • This will increase the prices and make it more difficult for first time home buyers.
    • If most people choose to have more than one house thinking that it is a good investment as well as saves tax, then, we'll end up with more houses than families. (technically, but may never happen in reality, not in India) and the housing bubble will burst. (of course there is plenty of black money floating out there that can keep the bubble from bursting and keep the housing prices artificially inflated.)

Here are some useful links
MoneySavers
NDTV
BT
IT-CALCULATOR

if you wish to re-build it you many need this

Location: Bangalore, Karnataka, India

Comments

  1. Sreehari Katageri3 January 2014 at 00:45

    nice post Akshay.. Axing reduced :)

    ReplyDelete
  2. VISHAL MEHTA3 January 2014 at 01:05

    Good Article!!

    ReplyDelete
  3. Akshay Kadidal3 January 2014 at 06:38

    Thanks guys :)

    ReplyDelete
  4. Raghavendra Shenoy3 January 2014 at 07:27

    Good one Akshay. I think you need to follow this up with one on opportunity cost. Returns from house as an investment, vs foregoing it and investing the surplus in a combination of Equity+Debt. We can discuss!

    ReplyDelete
  5. Akshay Kadidal3 January 2014 at 08:18

    Thanks Raghavendra, Calculating returns on property is dicey. I have been trying to do that but data is hard to come by. I may need a crawler to get data from makan, 99acres etc frequently and track it over time. Let's discuss it over the weekend.

    ReplyDelete

Post a Comment

Popular posts from this blog

Virus: Discussing macroscopic possibilities

Image
Our world view is limited by our own senses and our size and scale. I am throwing out a possibility of studying viruses through another lens.  Many people believe that COVID-19 is the mother earth’s fight against human infection [ 0 ] . It is quite possible that viruses are earth’s antibodies trying to keep the earth healthy. Viruses are known to keep the balance and diversity of microbes in the oceans.   [1]   Viruses have been eliminating species that run wild since the beginning of life on earth. They are a major driver in human evolution [   2 ][   3 ] . Recent studies have shown that viruses could have been the reason we have life on earth. [   4 ][   5 ] So, there is more to viruses than it is commonly known. In this blog, I would like to discuss the possibility of studying viruses through another lens. Allow me to take you through some seemingly unrelated illustrations to make my point.   Every mammal on this planet instinctively develops a natural equilibrium with the surroundi
Read more

Could Generative AI pose an existential threat to us?

Image
  In recent days, prominent figures in the field of AI, like Geoffrey Hinton, Sam Altman, etc., have sparked discussions about the potential dangers of generative AI.  There is something eerie about chat GPT-like bots. One can think of many dangers with the current AI tech, but none of them seem existential.  Andrew NG  called for the LinkedIn community to  list the existential risks of AI . While it is challenging to pinpoint the exact reasons behind these concerns, there is an undeniable discomfort associated with the latest advancements in AI technology. This article is an attempt to evaluate fears surrounding generative AI, examining its impact on various aspects of our lives and contemplating whether it poses a terminal threat to the human species. 1. The Misdemeanor Bots: When interacting with chat GPT-like bots, one cannot help but think of less dangerous spam emails or encountering age-inappropriate content. Although these experiences might not be existential threats, they high
Read more