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ICICI BANK STANDARD CHARTERED BANK CITIBANK HDFC Here's a quick insight into Home Finance and its Advantages. Q: What are home loans? Ans: These are loans you have access to, depending on whether you want to buy or build a house and can also be used to repair or extend an existing house. Q: Who can avail of these loans? Ans: According to lending institutions, any Indian resident who is over 21 years of age at the beginning of the loan and below 65 at its maturity can avail of the loan. Salaried Employees as well as Self-Employed citizens can apply. NRI Salaried and NRI Self-Employed, under RBI guidelines, can approach only nationalized banks and other HFCs for loans. Q: Why should you opt for a loan to buy a house? Ans: Taking a loan seems like a good option when the money at hand is insufficient to buy the house of your dreams. Consider couples in their twenties and thirties. They enjoy a good income currently, but their accumulated capital isn't enough to purchase a house. Whereas a home loan can give them access to capital against their current earnings. Also, if you take a 10-year-old loan when you are thirty, you could repay it by the time you're forty. So you don't have to be burdened with the interest and are free to plan your retirement savings. Q: What are the tax benefits of taking a home loan? Ans: The income tax authorities look with favour upon those servicing a housing loan from specified financial institutions. And, it is up to you to be wise enough to take advantage of this. Let's start with Section 24 of the Income Tax Act. Interest paid on capital borrowed for the acquisition, construction, repair, renewal or reconstruction of property is entitled to a deduction. That means you are allowed to deduct an amount equivalent to the total interest payable on the housing loan from your taxable income within the same financial year. This is now a substantial amount. It started off with the Income Tax Department offering Rs 15,000 as the maximum amount eligible for deduction in the case of self-occupied property. This later got doubled to Rs 30,000. It did not stop there. After getting enhanced to Rs 75,000, it was then taken to a limit of Rs 1 lakh. Presently, the limit stands elevated to Rs 1.5 lakh. So, should you borrow money to acquire, construct, repair, renew or reconstruct property on or after April 1, 1999, you get a deduction of up to Rs 1.5 lakh. The criteria being: the property has to be acquired or constructed by March 31, 2003 and be self-occupied. When put in figures, this is quite an amount. Assume taxable income of Rs 4 lakh, placing the asses see in the highest tax bracket. Assume interest payment during the first financial year is Rs 1.60 lakh Taxable income stands reduced to Rs 2.5 lakh (Rs 4 lakh - Rs 1.5 lakh being the maximum limit) Total tax amounts to Rs 49,980 (tax of Rs 49,000 + surcharge of Rs 980) Tax saved is Rs 45,900 (tax @30% on Rs 1.5 lakh plus 2% surcharge as the investor is in the highest tax bracket) That brings us to Section 88 of the Income Tax Act. You get a 20% rebate on repayment of principal during a financial year. Once again, over the years, the principal repayment eligible for rebate has been enhanced from Rs 10,000 to the current limit of Rs 20,000. Stamp duty, registration fee or other such expenses paid for the purpose of transfer of such house property to the asses see is also considered under this amount. Going back to our earlier example: Taxable income of Rs 4 lakh Taxable income stands reduced to Rs 2.5 lakh Tax before rebate and surcharge: Rs 49,000 (no surcharge is computed as surcharge is applicable on tax payable after allowing for rebate under Section 88) Rebate of Rs 4,000 (20% of Rs 20,000 being principal repayment) Tax less rebate of Rs 4,000 + surcharge @ 2%= Rs 45,900 Tax saved = Rs 49,900 (Rs 45,900 as shown above plus rebate of Rs 4,000)
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