Two is company

Two is company

Taking a loan to buy a house? If both you and your spouse are working and paying taxes, it makes more sense to take the loan jointly. Under Section 80C of the Income Tax Act, the principal that each of you repays on your loan is deductible for your taxable incomes to the extent of Rs1 lakh, while the relief each of you gets under Section 24 on the interest component is Rs1.5 lakh max.

Let’s say you’re taking a 15-year loan of Rs25 lakh at 13% rate of interest and that each of you draws a taxable salary of Rs7.5 lakh. Each of you will be servicing the loan equally. The joint loan would help you reduce your combined taxable incomes by Rs3,57,945 in the very first year, of which Rs57,945 would be on account of principal repayment and Rs3,00,000 on account of interest paid. That translates into a tax saving of Rs1,10,605 for the family, including the surcharge.

Total deductions available to the two of you would peak between Year 4 and Year 10 at Rs3,79,572, yielding a saving of Rs1,17,288 in each of those years. And the total amount you would claim as deduction and save as taxes during the loan period would amount to Rs52,63,610 and Rs16,26,455.

Had you gone it alone, the deduction and savings in the first year would be Rs2,07,945 and Rs64,255 and the total claims and relief during the loan period would be Rs33,70,765 and Rs10,41,566.