Section I: Income Tax and Your House

• Ques: Buying home is more beneficial than renting
• Ans: Key points:
  • The purchase of home is one of the most important decisions of your lifetime.
  • If you have the down payment (typically 15% of home value) available with you, then the balance 85% amount can be borrowed against the home you plan to buy.
  • The benefits of home loan interest deduction and repayment of principal will be more than the house rent allowance deduction. Most important benefit in buying a house is the hidden appreciation of the value of property. If you delay the decision to buy a house, at times it becomes out of range.
  • Buying a home using home loan is also an investment for retirement. It is like a disciplined saving for your safe retirement. You can reverse mortgage the house after attaining 60 years of age. Your monthly expenses could be met by the tax-free amount you will receive from reverse mortgage.
  • However, the cash outflow is high in case you buy the house. For example, if you buy a house worth Rs. 50 lakh, then you will need Rs. 7.5 lakh for down payment and approx. Rs. 47 thousand of EMI (@10.5%, 15 yr loan). So, the first year outflow is Rs. 13 lakh. Whereas, you can rent a similar property for approx. Rs. 2 lakh (including 4 months security).
  • Buying home is long a term decision as the cost of transfer/selling is very high. It includes stamp duty, and brokerage etc. Moreover the capital gain tax liability will arise at the time of sale.
  • Though the rented home is easy on cash outflow, but the home lease is typically given for only 11 months, which makes rented home a short term plan.
  • Home is an asset one gives to children as secure gift for generations.
  • Buy home if you are eligible through home loan. Be a proud owner.