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Guess The Winner- RENT OR EMI?
Written by Gagandeep Arora - Printed on - Date - 19th March 2022
Confused minds lead us to explore big possibilities. Life is like a multiple-choice question, sometimes the choices confuse you, not the question itself. So the biggest conflict for a young adult in the phase of settling down is to whether live on rent or take a home loan and pay EMI, what is better? Let us understand the circumstances in both situations. Anybody would tell you that it will be better to pay an instalment every month and make an asset is a better choice than paying rent every month. I would like to share my friend’s story here, he has moved out of his home place 10years back and in that period moved to five different cities. Now, he is planning to buy a house or continue living on rent.
A dilemma faced by many people who decide to settle down. There are two major issues faced by him while considering buying his dream house, he will squeeze his monthly budget to pay the high price of living as per his choice along with the uncertainty of the job world these days his savings will be less as he will keep paying big instalments monthly for the home loan. Once we calculate the amount of the loan and the interest paid on it he realized that the cost of the loan is higher than the loan itself. But another major reason for people to take loans is the tax benefits in taking a home loan.
Tax Benefits On Housing Loan
Another major reason people consider buying a house more profitable are the tax benefits which come along with a home loan.
1. Section 80 C
- A tax deduction of up to Rs. 1.5 lakh can be claimed for the principal paid.
- It includes stamp duty and registration charges but can be claimed only once.
2. Section 24
- Deductions of up to Rs. 2 lakh on the interest amount
- This can be claimed only on the property whose construction is finished within five years.
- If the construction is not completed within the time frame then a claim can be made up to Rs. 30,000.
3. Section 80EE
- First time home buyers can claim an additional Rs. 50,000 on the interest amount every financial year.
- The loan amount should not exceed Rs. 35,00,000.
- The value of the property should be within Rs. 50,00,000.
Tax Benefits Of Living On Rent
My friend has chosen to live on rent considering that he wants to increase his savings before he can buy a house. As there are a lot of benefits which an individual can avail even after living on rent. Firstly, there is more mobility if you have not tied your roots to the ground. Secondly, he can claim HRA which is a component of his salary.
House Rent Allowance more commonly called HRA is an allowance available to a salaried employee. Generally, it comes as a part of your basic salary. If you are living in rental accommodation as per Sec10(13A) of the income tax act, you can claim a tax exemption at the time of filing returns. In consequence, you can minimise your taxable income and henceforth the tax. This allowance acts as a cherry on the top for the salaried employees in India.
Applicability of HRA
The basis of calculation of HRA is primarily the basic salary, dearness allowances and any other commission. You are not entitled to the entire amount as an exemption only 10 % of basic salary is subtracted from the actual rent paid by you. The place you reside also makes a difference in the calculation, If you are residing in a metro city then 50% of the basic salary is taken otherwise 40% is in the case of any other city. The least amount is treated as your HRA exemption. For the calculation of tax benefits, proper documentation is a must like a rental agreement, signed and stamped rent receipts and if the rent exceeds Rs. 1,00,000 in a year than landlord’s PAN details.
Special Circumstances To Be Understood To Enjoy Benefits of HRA
Paying Rent To Family Members
-- In case you are giving rent to your parents or other family members and want to avail of the benefits of HRA you are entitled to it but the only condition is that you are not the owner or the co-owner of the house as per the documents. Neither your spouse nor a minor child should be the legal owner for the genuineness of the case.
Ownership Of House In A Different City Than Rent
-- Sometimes due to work, it is a possibility that you live in a different city and owns a house in a different place yes you apply to the benefits of HRA but the only condition is that the house owned and the rented property should not be in the same city.
Are Not Entitled HRA But Pay Rent
-- If you are not entitled to HRA due to any reason then you can claim deduction under section 80GG of the Income Tax Act. The requirement for the same is that you should not have received HRA during any part of the year. There should be no ownership of a house in the name of your spouse, minor child in the same city. You need to fill out a form 10BA to avail this benefit.
Your Property
-- No, if you own the property in the same city as the rented accommodation then you cannot avail the benefit of HRA.
HRA is like icing on the cake for employees' taxable income but it should be understood wisely to avail maximum benefit from it.
Conclusion- Right time to buy
Buying a big financial asset is a big decision to make this decision when you have enough savings to pay at least half of the price of the big house till then enjoy the benefits of living on rent.
You can still e-File your Tax Returns - Click here for CA Assistance
