The month of March has passed. This is the month in which most of Indian companies sit down to appraise their employees’ performance. This year’s salary appraisal may not have brought much cheer to everyone, as appraisals were below expectation, as is evident from press reports. Well, don’t get disappointed you can still give yourself a hike.
Wondering how?
Very simple! Take a housing loan of Rs 1,200,000 for 15 years. This could result in saving of over Rs 49,900 on your income tax outflow in the first year. Thus adding Rs 4,158 to your monthly income, without your employer actually contributing anything to it.
Lets see how it happens!
Suppose your salary is Rs 45,000 per month. Most of the housing finance companies would be more than willing to give you a loan of Rs 1,200,000. The loan of Rs 1200,000 enables you to take the full tax benefit on housing loan. On a loan of that amount for 15 years, your monthly instalments would be Rs 15,077. The figure looks a little high. Don’t be surprised, if someone tells you that your real out flow would be only Rs 10,776, if you fall in the highest tax-paying bracket.
The table below the shows the money you would be saving every year on account of tax benefit associated with housing loan.
Total tax saving over the term of the loan
|
Years |
Interest |
Principal |
Total saving (Rs) |
|
1 |
45,900 |
4,000 |
49,900 |
|
2 |
44,717 |
4,000 |
48,717 |
|
3 |
43,387 |
4,000 |
47,387 |
|
4 |
41,890 |
4,000 |
45,890 |
|
5 |
40,207 |
4,000 |
44,207 |
|
6 |
38,312 |
4,000 |
42,312 |
|
7 |
36,181 |
4,000 |
40,181 |
|
8 |
33,784 |
4,000 |
37,784 |
|
9 |
31,087 |
4,000 |
35,087 |
|
10 |
28,053 |
4,000 |
32,053 |
|
11 |
24,639 |
4,000 |
28,639 |
|
12 |
20,799 |
4,000 |
24,799 |
|
13 |
16,479 |
4,000 |
20,479 |
|
14 |
11,619 |
4,000 |
15,619 |
|
15 |
6,151 |
4,000 |
10,151 |
|
Total |
463,207 |
60,000 |
523,205 |
Getting scared (confused) with numbers! Put in simple words, a monthly instalment of Rs 15,077 amounts to an annual payment of Rs 180,917. Of this, the interest component is Rs 1,50,000, and the principal Rs 30,917. In this year’s budget, annual exemption limit on interest payments on housing loan have been raised to Rs 150,000 and principal up to Rs 20,000. If you were in the highest tax slab, your saving would be Rs 49,900 in the first year on a maximum exemption limit of Rs 170,000 (Rs 150,000 + Rs 20,000). The total saving on account of tax benefit associated with housing loan over the term of the loan would be Rs 523,205. If you were in the 10% or 20% bracket, your saving would be correspondingly a little lower.
So, in short, it means that every month you have Rs 4,158 extra in your hand. In effect, an increase of Rs 4,158 per month in your net income, without your employer actually contributing anything to it! Add to this the rent that you would probably be saving every month, the figure will increase further. Isn't it time you thought of buying a house?
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