Myth About Housing Loan and Tax Saving

There is a lot of buzz on housing loan and tax savings these days…. Every alternate day we see an articles in most of the daily newspaper on how to calculate your EMI and how to” SAVE TAX” though most of them are paid advertisements. Somehow it has created very strong FALSE IMAGE about a housing loan leads to huge tax saving which is not really true.

Today friend of mine and I were discussing how effective this tax saving on housing loan and how much we can REALLY save on self-occupied property. I had a strong logic and feeling that housing loan leads to a good amount of tax savings. However my friend disagreed that and argued that its only a myth, max amount one can really save is not that big , it could be somewhere between 45 to 50 k p a. I disbelieved that and argued with him, if that is the case why would anyone go for a housing loan of 35 to 45 lakh to get just mere 45k tax rebate!!?? What is the incentive which government is drumming around on housing sector promotion through tax savings? How can anyone hang himself to a home loan for 45 lakh just for the saving of 1 % the amount? I really could not buy the logic that saving is so less on housing loan. My friend who is finance head got bit irritated with my argument... however I was convinced that there must be more benefits as people are rushing madly for home loan ,(especially software professionals), else why would people go crazy about housing loan !!.

Finally we landed up discussing this with our friend Chartered Account , and I was surprise to see that its true that you save only a peanut in effect.


Lets understand a bit :

There are two component to Income Tax one is under Sec 24 interest and other one is principle amount sec 80 C.

1) The maximum limit under section 24 of I T act is Rs. 1,50,000 and you don’t have to actually live in the house to claim this benefit. The interest payment is deducted from your taxable income and thus reduces your tax liability. There is no limit on the number of houses you can claim this as well as the location of the houses. The only limit is Rs. 1,50,000 on the whole amount. This amounts to 45k if you are in 30 % tax bracket


2) The principal amount is covered under Section 80C and has a Rs. 1 lakh limit. This is only available to you if you’re living in the house that you have taken the loan for. That means you can’t use this exemption if the house is under construction or if you are not living in it.The only exception to this condition is if you work in a different city. If you work in a different city then you can claim exemption on the principal amount of your home loan under 80C.This one lakh is inclusive of other savings like LIC and PF,



So in effect…. anyone who wants to go for housing loan because of Tax benefit offers that is NOT really worth the risk. One has to really evaluate the other aspect and benefits of the property than Tax Saving. The minimum amount which has to be paid for a decent apartment in todays time is around 45 lakh (4.5 Million Rs) and the tax saving is a mere 1% of that I e 45k which is not really attractive enough and one has to really Think!!!