Home Loan - Need or Necessity?

People work hard to earn basic necessities. Being shelter one of these basic necessities – it often confuses one to own a home or live in rent. Read more

7 Jul,2017 04:15 IST 582
Home Loan - Need or Necessity?

Written by Vishal Gupta

Vishal Gupta holds wide knowledge and expertise in digital strategy, product management, campaign design and ideation.

Food, water, clothing, breathing, shelter and sleep – basic necessities of a human being, reside at the bottom of the Maslow’s pyramid (hierarchy of human needs –concept by Abraham Maslow in 1970). People work hard to earn these basic necessities and achieve them first in order to move on to the next level of hierarchy.

Being shelter one of these basic necessities – it often confuses one to own a home or live in rent. With increasing property prices day by day, it becomes more and more difficult for a person to get this basic necessity fulfilled. One of the easiest ways to get the same is to avail a home loan.

Today Government is extending helping hands by providing interest subsidy* to the ones who deserve and match the set criteria. One such assistance is Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana.

Its eligibility parameters are mentioned below -

Category Annual Household
income
Unit Carpet
Area(Sq.mts)
Interest Subsidy Maximum Subsidy
AMount
EWS Upto Rs 3 lac - 6.5% 2.67 lacs*
LIG Rs 3 lac-Rs 6 lac - 6.5% 2.67 lacs*
MIG I Rs 6 lac- Rs 12 lac 90 4% 2.35 lacs*
MIG II Rs 12 lac-Rs 18 lac 110 3% 2.30 lacs*

In addition to these benefits, housing loan EMI payable by the borrower can be claimed under Income Tax Act. The housing loan EMI consists of - principal amount as Rs. 1, 50,000/- deductible under section 80C and interest amount as Rs 2, 000, 00/- deductible under section 24 of the Income Tax Act to get additional benefits.

Person A Person B
Income – Rs 7 lac Income – Rs 7 lac
Tax Rebate – Rs 3.5 lac (housing loan principal + interest) No Home Loan and tax deduction of Rs 50,000 under PPF
Remaining Amount – Rs 3.5 lac Remaining Amount – Rs 6.5 lac
Taxable Income – Rs 3.5 lac – Rs 2.5 lac (free) = Rs 1 lac Taxable Income – Rs 6.5 lac – Rs 2.5 lac (free) = Rs 4 lac
Tax – 5% of Rs 1 lac = Rs 5000 only Tax – 5% of Rs 2.5 lakh = Rs 12,500
20% of Rs 1.5 lakh = Rs 30,000
Total = Rs 42,500

The above table shows how home loan save tax

Some of one might hesitate to avail a home loan; perhaps the thought is that one’s residual income is reduced by paying EMI. Well, this thought is to some extent is valid but not for all. If we look at another way, the applicant can save his/her rent, gets tax rebate & subsidy (if any) which can be adjusted towards EMI. And in this context, one should also remember the opportunity cost and law of sacrifice, ‘To be successful in something, you should give up something’

Next question that might come to mind is “what if possession is at the later stage?” Yes, this happens and in this case, one can always opt for PRE EMI option; this is just the interest portion on the disbursed loan amount that one pays until the full disbursal is done.

So to conclude the question we started with “Home Loan – A need or necessity?” – It’s better to say it’s a need driven by necessity.

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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