For regular income from investments, for pension or just additional money per month, most of the people instantly think only of interest from bank FDs, insurance pension policies, the payouts of Senior Citizens Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS) or Pradhan Mantri Vaya Vandana Yojana (PMVVY), little realising that these are low returns schemes which are also very heavily taxed. A much better alternative is the SWPs (Systematic Withdrawal Plans) of mutual funds which are an exact opposite of SIPs. They are much more tax-efficient, earn better, have full flexibility of when to start, how much and till when to withdraw, increase or decrease the amount as required and restart/stop at one’s convenience. One can be 100% safe or as risky as one wants. If planned properly, one may pay a tax of just about 6-7% on the amount withdrawn compared to 20-30% on other options.July 4th, 2018
All the loans are typically front-loaded. Most of the interest of the entire loan is taken in the first half of the loan period. So if you’re towards fag end of the loan, do not prepay.
The net interest rate comes out lower if you have possession of the house due to tax benefits on interest. So 8.5% loan costs about 6% for a person in 30% tax slab. Mathematically, better not to prepay.
But you pay a large interest over time. For a 50 Lakh, 15 years, 8.5% interest loan, you pay Rs 38.62L interest. Tax benefit on this loan is 0-11.58L in 15 years depending on your tax slab. In 30% slab, you pay an additional 27L to get this tax benefit of 11.58L. Think about it!
And don’t forget the psychological burden of having a large loan to pay especially if you’re retiring soon.
Home loan tax concessions are available only after house is constructed and possession taken. If house is sold while under construction, no tax benefit available. Conversely, if home loan closed anytime earlier but possession still taken, benefits are available for interest paid.
Interest: No deductions for EMIs or Pre-EMIs for interest till the construction is completed. Say construction completed during financial year (FY) 2018-19. Then all interest paid till 31 March 2018 is totaled and can be claimed in equal installments over 5 years from FY 2018-19 onwards along with that year’s interest, subject to a total limit of Rs 2 Lakhs per year. Balance is carried forward for next 7 consecutive years. However, if construction period was longer than 5 years from end of the FY in which loan was first taken, limit of Rs 2 Lakhs gets reduced to Rs 30,000 per year only.
Principal: Counted as part of Section 80C.June 27th, 2018