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Home Loan - Need or Necessity

By IIFL Home Loans | Published On Jul 07 2017 3:15 PM 2 min read 25 views 2882 Likes
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 pyramid hierarchy of human needs oncept 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
AreaSq.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 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, o be successful in something, you should give up something

Next question that might come to mind is hat 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 ome Loan A need or necessity It better to say it a need driven by necessity.

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