A husband-wife team with incomes from two separate jobs can take advantage of the tax laws by buying a residence through a home loan. There are some clauses within the Income Tax act, which allow you to achieve this.
Section 24(b) grants deduction for interest up to Rs 150,000 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. Besides this, even on the home loan front, a joint loan application will also help a couple acquire a larger loan.
Self-occupied residential properties can get tax concession under Section 23(2). This section says 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 150,000 will be available.
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 (Rs 1.5 million) each, they could claim an annual tax deduction of Rs 300,000 (Rs 150,000 for each) and save aggregate tax of Rs 102,000 (33.99 per cent of Rs 150,000 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.
Repayment of the principal amount of a housing loan is another 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 100,000 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, Public Provident Fund or life insurance policies with cash values.
The writer is a chartered accountant.
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