POSTED BY March 31, 2011 11:58 pm COMMENTS (8)
ONI’m planning for a home loan for about 30L. I currently fall under 30% tax bracket and my wife fall under 20% tax bracket. We are planning to co-own home and loan. From my calculations I’ll be saving atleast 10K each month from tax when home loan exempted from net taxable income. If I do a regular SIP from this amount in mutual fund for my loan duration (10 years) I generate corpus of 21L.
Total interest part of EMI is roughly equal to 15L when I considered SBI home loan. Is my calculations are correct? Can I really make almost interest free home loan if I use it wisely as tax savings option. Please advice.
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Dear Raj, From the news papers, the last thing I heard regarding DTC – a parliamentary committee is analyzing the draft of DTC & may be in monsoon session the DTC ‘ll be passed as an Act. In case, Govt. is not able to keep it’s deadline for FY 2012-213, I do hope from 2013-2014, it ‘ll surely become a reality.
Thanks
Ashal
Dear Raj, there is some mistake in your calculation for tax benefit. I assume you are considering the both tax benefit – Interest as well as Principal repayment. My dear friend, From next FY i.e. 2012-2013, the DTC ‘ll be implemented & Principal repayment benefit ‘ll not be there. So the only thing remains under DTC ‘ll be Interest benefit. As you have used SBI as your base for calculations & for a loan duration of 10Y only, The interest part ‘ll not go beyond 3L Rs. mark at any given point. In fact after first 3 years it ‘ll come down significantly. based upon the current applicable Tax slab & I assume your wife ‘ll remain in 20% for next 3-4 years, for a max. interest payment of 3L Rs. in a FY, the combined tax saving ‘ll be not more than 77250 Rs. (46350 your benefit @ 30% slab + 30900 wife’s benefit @ 20% slab).
77250 Rs. in a year means some where around 6500 Rs. mly. & remember this amount ‘ll come down with each passing FY. Make a note of it in your calculation. If your property costing is more than 40L Rs. I’ll ask you to go for max. possible Loan amount @ 80;20 ratio of loan to down payment. Invest your saved down payment money in a one lump sum or systematically over next few months & keep hold on it for next 10Y. Recheck the calculation based upon my input.
Thanks
Ashal
Hi Ashal,
Thanks for the DTC caveat. BTW is it finalized as bill? Where can I find the final draft of DTC bill?
When you loose on HRA, you will be gaining on saving the rent
Hi,
Both you and wife can get maximum tax exemption of 1.5L for self occupied property. This is just for your information (I dont know how you have calculated). For example, if you are paying 3L as interest, both of you will not get exemption for 3L but you will get tax exemption for only 1.5L
This is what I know, please correct me if I am wrong.
thanks,
-venkatesh
Vekantesh,
I guess it is the other way around. See comments from Manish here: http://localhost/jagoforum2/double-tax-benifit-on-home-loan/1323/
One mistake I did in previous calculation was I forgot that I wont be able to claim HRA as I used to. That brings down total savings from tax / month to 6K something from projected 10K.
Correction:
Also, make sure you utilize the 1.5L limit for home loan interest payment for you wife as well.
Raj,
Appreciate your thinking.
Assuming your calculations are correct, it is definitely a wise option to go for it as you would be earning more than what you are paying as interest in 15 years / 20 years.
I have posted the similar thing here in below link, where you can actually earn more than what you pay in interest giving you net profit.
Please go through it. Only difference is I am considering putting a lumpsum of 5L in zero risk product ( FD etc ) and you are doing SIP of 10K per month.
Link:
http://localhost/jagoforum2/home-loan-beneficial-than-making-payment-upfront/1435/
Only advise would be to re-calculate the worst case scenarios as well since MF invest return percentage varies as well as home loan interest rate varies.
try calculation MF return @7 or 8 % & home loan interest rate @ 13-14%
Also, make sure you utilize the 1.5K limit for home loan interest payment for you wife as well.