ITR filing: Is it wise to pay home loan EMI and avoid income tax outgo?

  • January 30, 2022
  • CA Chandan Agarwal's Office

ITR filing: It would be naive to just base the decision of a home purchase simply on the amount of income tax that a person saves, believe tax and investment experts

ITR filing: Last date for Income Tax Return (ITR) filing (31st March 2022) is fast approaching and earning individuals are busy finding various ways to save their income tax outgo. As home loan EMI payment helps a taxpayer save income tax on up to 3.5 lakh taxable income in a financial year, people look at buying a home through home loan as an option to save money meant for income tax. However, if we go with the views of tax and investment experts, home loan EMI is not a good solution to save income tax every time. They said that there are various other factors, which a taxpayer needs to look at while buying a home and home loan tax benefit is just one of those factors.
Speaking on home loan tax benefits; Ashish Narain Agarwal, Founder & CEO at PropertyPistol.com said, “Income tax saving is an important driver in real estate purchases. However, it would be naive to just base the decision of a home purchase simply on the amount of income tax that a person saves. Buying real estate has to be an informed decision as it is a big transaction and purely from financial point of view, there are several other parameters that a buyer should bear in mind before deciding for or against the purchase. A proper cost benefit analysis involving upfront cost, mortgage cost, ownership expenses over the ownership period and expected appreciation also need to be considered and then the decision of buying versus renting should be taken.”

Advising income tax payers to look at other tax saver options while planning for their income tax return filing; Shruti Khandare, CMO at MyFundBazaar India Private Limited said, “If you are falling in income tax slab of 30 per cent, then buying a home to avoid tax is advisable. In the case of income tax slab falling around 10 per cent to 20 per cent, one should look at buying individual medi-claim for his family including his senior citizen parents. This will enable him to claim income tax exemption on annual medi-claim premium paid up to 75,000. Additionally, you can go for NPS investment as well as it allows an additional income tax exemption under Section 80 CCD on investment up to 50,000 in a financial year.”

Speaking on income tax benefits available on home loan EMI repayment; SEBI registered tax and investment expert Jitendra Solanki said, “While paying home loan, a taxpayer can claim income tax exemption on up to 3.5 lakh taxable income in one financial year — up to 1.5 lakh exemption on home loan principal repayment under Section 80C of the Income Tax Act and up to 2 lakh on home loan interest repayment under Section 24(B) of the Income Tax Act. However, if the taxpayer is a salaried person, then in that case claiming home loan tax benefit of 1.5 lakh on home loan principal repayment becomes difficult as tax benefits under Section 80C includes other exemption like provident fund, ELSS mutual fund investments, LIC premium payment, school fee paid for children, etc.”

Home loan EMI calculator

Asking home buyers to use home loan EMI calculator while buying a home for saving money meant for income tax outgo; Jitendra Solanki said, “In first 4-5 years of home loan tenor, around 65 per cent of the monthly home loan EMI goes as home loan interest. So, to claim tax benefit on 2 lakh annual home loan interest repayment, one’s monthly home loan EMI has to be around 30,000. It means annual home loan EMI would be around 3.60 lakh. As one should keep home loan EMI below/at 40 per cent of one’s net take home income, the taxpayer’s annual take home income falls around 9 lakh. So, if a taxpayer is earning 9 lakh or more per annum, then in that case home loan EMI can be a good option to save income tax outgo.”

Source: https://www.livemint.com/money/personal-finance/itr-filing-is-it-wise-to-pay-home-loan-emi-and-avoid-income-tax-outgo-11643502754122.html
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