Tie the knot, you can at least save some tax

Vivek Kaul Monday, February 06, 2006 21:30 IST

Manchahi ladki kahin koi mil jaaye, apna bhi is saal shaadi ka iraada hai — Lyrics by Anjaan in the movie Waqt ki Deewar

MUMBAI: It’s been a few years since Kavi Kumar and his friends have passed out of college. But for old times’ sake, they still meet once in a while. Over the years, these meetings had been far and few between. For want of better topics, most of their conversations hinged on two points, ‘Mumbai ka mausam’ and ‘Aur shaadi ka kya socha?’ After some customary greetings, Ganesh Sharma, who was to get married in April, set the ball rolling. “Kumar, I think it’s high time you got married.”
“Not again, why did I even decide to come to this place,” thought Kumar. “And may I ask why?” replied Kumar, slightly irritated. “Well, actually you could get a greater home loan to buy that Rs 47- lakh two bedroom flat you have been eyeing for,” replied Sharma.
“Now that was something new,” thought Kumar.
“At your current salary of Rs 45,000 per month, you would be eligible for a loan of around Rs 23 lakh. Now let’s say you are able to find a girl who earns the same salary as you do. Given this, the combined monthly salary would be Rs 90,000. At that salary level, you would be eligible for a loan of Rs 46 lakh. But most of the banks or housing finance companies would lend around 85% of the value of the property (Rs 47 lakh in this case). That would turn out to be around Rs 40 lakh. The rest you will have to manage from your own resources.”
“Ganesh, for once you seem to be talking sense,” Kumar egged him on. “So let’s say, you and your wife take a home loan of Rs 40 lakh at a fixed rate of 8.75% per annum to be repaid over 20 years. Both of you have an equal share on the home loan i.e, 50:50. The equated monthly instalment (EMI) would work out to be around Rs 35,350.
Section 24 of the Income-Tax Act, 1961, allows for a deduction of up to Rs 1,50,000 from taxable income for interest payment towards a home loan.
Under Section 80 C of the I-T Act, the money going towards the principal repayment is eligible for deduction. The limit under Section 80 C is Rs 1,00,000. Since you and your wife have taken a joint home loan, you will be allowed tax deductions in the proportion of the loan i.e. 50.50,” Sharma explained.
“I did not understand the tax part of it. Can you elaborate it a little more?” asked Kumar.
“Well, see in the first year, the total interest part of the EMIs will amount to Rs 3,46,966. Now both of you would be allowed a deduction of up to Rs 1,50,000 from your taxable income. The principal part of the EMI in the first year will be
Rs 77, 234. Since both of you would have taken a loan in the 50:50 proportion, both of you will be allowed a deduction of Rs 38,617 each from your taxable income under Section 80 C,” explained Sharma.
“That’s all, or you have a few more aces up your sleeve?” said Kumar. “If you do not want such an expensive house, you can pay a greater EMI and pay off the loan faster,” explained Sharma.
“All this is fine. But you know Ganesh, I really do not want to get married. Currently, I live in with my girl friend. Will a bank give me a housing loan?” replied Kumar. Sharma did not have an answer for this question.