Sunday, July 15, 2007

Money Making Machine- Deduction available on Home Loans can save tax for both Husband and Wife

Money Making Machine- In this Column we will teach you how you can make money even while buying. Did you know that deduction on repayment of home loan is available to both husband and wife to the amount of 5 lakhs. This meanssaving of above 1.5 lakh and amount of 5 lakh getting reduced to 3.5 lakh only. Again it means EMI of 40 thousand gets reduced to 30 thousand.

Wise people said you not only make money while selling but also purchasing.

Read on the intricacies.

Apply jointly with your spouse for a home loan to claim larger tax deductions. Section 24(b) grants deduction for interest up to Rs 1.5 lakh per year on a loan for acquiring a residential house. This deduction is available individually to both the spouses. To be eligible for the deduction, the home loan needs to be taken in joint names, property be owned and financed jointly in equal shares, with both spouses being joint owners. Needless to say, a joint loan application will also help a couple avail of a larger loan.

Get tax deduction for home loan interest repayments. Self-occupied residential properties can avail of another tax concession under Section 23(2) that provides that the notional income for the purpose of income tax for such properties will be deemed nil and yet the deduction for interest up to Rs 1.50 lakh will be available. In other words, there will be negative income (loss) from such property that will be available for set off against the tax payer’s any other income, including salary income. To put it differently, interest on borrowed money becomes tax deductible. If husband and wife both were to have an annual income of Rs 15 lakh each, they could claim an annual tax deduction of Rs 3 lakh (Rs 1.5 lakh for each) and save aggregate tax of Rs 1,01,970 (33.99 per cent of Rs 1.5 lakh multiplied by 2) between them. For convenience, they can file a declaration with their respective employers to deduct a specified amount of lesser tax at source from their salaries.

Claim tax deduction for principal repayment for home loan. Repayment of the principal amount of a housing loan is one of the tax concessions a taxpayer can enjoy under Section 80C. But unlike Section 24, this deduction is available only for repayment of the loan from an approved source like banks, HDFC, HUDCO or the employer company. The repayment of principal part of the loan qualifies for a deduction under Section 80C up to a maximum of Rs 1 lakh per year. In case of joint home loan application, this results in joint tax saving of Rs 67,980 (Rs 33,990 multiplied by two). But the biggest advantage in availing Section 80C deduction for repayment of housing loan is immunity from any adverse tax consequences of the proposed EET (Exempt, Exempt and Tax) system—where investments will get taxed on maturity, redemption, or sale. The simple reason for this is that by the very nature of the transaction (repayment of a loan), there is no question of “withdrawal’ of funds to attract tax, unlike in the case of National Savings Certificate (NSC), Public Provident Fund (PPF) or life insurance policies with cash values.                                                              

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