It is not good to keep your home loans unpaid. Similarly, repaying your loan sooner before the terms is neither good. Which loan is best and when the loans have to be repaid? Know the tax benefit on home loan and take profits by knowing how long you can keep repaying the loans to enjoy the benefits.
Tax Benefit on Home Loan
House Loan Benefits on Tax
A statistics say that in India a major number of populations are repaying and closing the housing loan much before its actual installment period. Due to this we are losing the tax benefits that we could enjoy on house loans. Normally, if a person has availed a house loan – he will be given the tax benefit of Rs. 1.5 Lakhs on the house loan interest and Rs. 1 Lakh on the principle amount. If the house is left for rent, you will be getting tax exemption for the complete interest amount.
The exact tax benefit on home loan can be explained by illustrating an example. For example: A person (who is on 20% tax category) avails Rs. 20 Lakhs as housing loan. The loan repayment period is 15 years. He or she has to pay Rs. 21,500 as the monthly EMI based on 10% interest rate. Which means it comes to Rs. 2.58 lakhs a year (with interest Rs. 1.98 lakhs and principle amount Rs. 60,000)
This person’s annual income is Rs. 10 lakhs. Considering that he or she has left this house for rent and get Rs. 60,000 a year on rent. Then the total annual income sums up to Rs. 10,60,000. Now, excluding the tax for the principle loan amount and interest amount of Rs. 2.58 lakhs, you can pay tax only for the remaining Rs. 8.02 lakhs (as per section 80-C and 24-B respectively). By doing so, this person is saving Rs. 53,000 per year on tax. If this fund can be invested in on any mutual fund that is expected to give a 12% income for 15 years, at the end you’ll be getting Rs. 20 lakhs as benefit.
Even if you have enough funds in your hands and have enough income to repay a loan, you can very much go for a housing loan. The fund in hand of Rs. 20 lakhs can be invested in any mutual funds expecting a 12% income without spending this money on anything else. The returns of Rs. 21,500 can be paid for the house loan monthly EMI. Even by doing so, you’ll still have Rs. 12.50 lakhs in hand after 15 years. So, if you are looking for a better option to make a good income and house loan on home loan, it is better not to repay the housing loan before the given term.
As the monetary benefit is explained above, it is good not to rush and foreclose your house loan before its tenure. The tax benefit on home loan differs on the amount of loan that you have acquired, so it would benefit even much more than the illustration above.