Taking a loan for that second home

Normal 0 false false false EN-US X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} Tarun is planning to buy asecond house worth Rs 45 lakh with a home loanof Rs 36 lakh. He already has a flat that is worth Rs 40 lakh for which he hastaken a loan of Rs 32 lakh three years ago. His income is Rs 1.2 lakh a month.He is now scouting for another home loan. He is also not clear about the taximplication of the two home loans. Analysis First home loan - Rs 32 lakh Current year - Third Interest rate - 8.25per cent Interest amount to be paid in the current year - Rs. 2.50 lakhPrincipal amount to be paid in the current year - Rs. 77, 000 Second home loan - Rs 36 lakh Current year - First Interest rate - 8.25 per cent Interest amountto be paid in the current year - Rs 2.94 lakh Principal amount to be paid inthe current year - Rs 73,800 With regard to his first home loan for Rs 32 lakh,he is entitled to Rs 1. 1.5 lakh of maximum tax deduction on the interest paid under Section 24 (b),and Rs 2. 1 lakh of maximum tax deduction on the principal paid under Section80 (c). So,he can avail of deduction of Rs. 1.50 lakh against the interest amount of Rs.2.50 lakh to be paid and Rs 77,000 against the principal amount of Rs 77,000. Butsince he is planning to take a second home loan for his second house, thecalculation of his tax deduction will be something as described below. Taxdeduction for principal paid Under section 80 C, one gets maxi- mum deductionof Rs. 1 lakh for principal amount paid against a home loan, and this is validin case of multi- ple property too. So, in Tarun's case it will work out asfollows: Principal paid against the first home loan - Rs 77,000 Principal paid against the second home loan - Rs 73,800 Totalprincipal paid - Rs 150,800 Tax deduction under 80 C - Rs. 1 lakh. Taxdeduction on Interest paid For the sake of calculation, one is allowed toconsider one of the two houses as self-occupied and the other as rented, evenif an individual is using both of them for his own use. First home If treatedas self occupied: Interest paid in third year - Rs 2.50 lakh Tax deduction oninterest paid - Rs 1.50 lakh If treated as notionally rented out : Net Incomefrom rent Annual Rent - 1.80 lakh (assuming arent of 1.5 lakh pm) Less: Standard Deduction at 30 per cent of rent - Rs54,000 Less: Interest paid - Rs 2.50 lakh Net Outflow = (Rs 1.24 lakh) Loss ofIncome Second home If treated as self occupied: Interest paid in first year -Rs 2.94 lakh Tax deduction as per 80 C - Rs. 1.50 lakh If treated as notionallyrented out: Net Income from rent Annual Rent - Rs 1.44 lakh Less: StandardDeduction at 30 per cent of rent - Rs 43,200 Less: Interest paid - Rs 2.94 lakhNet Outflow = (Rs 193,200) Loss of Income Net outflow is calculated by deduct-ing the standard deduction from the annual rent and then further deduct- ingthe remainder from the interest paid Option 1 House one for self - Rs 1.50 lakhHouse two on rent - Rs 1,93,200 Total Outflow - Rs 3,43,200 Option 2 House oneon rent - Rs 1.24 lakh House two for self - Rs 1.50 lakh Total Outflow - Rs2.74 lakh Therefore, option 1 is the better option as he will get tax deductionof around Rs. 3,43,200 from his income. Summary Tax deduction on Principle paid - Rs. 1 lakh Tax deduction on interestpaid - Rs. 3,43,200 He gets a total of Rs 4,43,200 as deduction Name: TARUN Working in:Private company Salary per month: Rs 1.2 lakh Courtesy: HT Estates 20 th Feb 2010 More Informations : http://www.zameen-zaidad.com And http://www.propertycateterya.com

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