Date:23/09/2005 URL: http://www.thehindu.com/2005/09/23/stories/2005092316880200.htm

Karnataka - Bangalore

Housing loans reduce tax burden

Special Correspondent

Joint ownership helps avoid the ceiling on individual payments of interest

One spouse can claim exemption if the interest is above the ceiling rate

It is wiser to compare lenders on the total financing cost

BANGALORE: "The tax on fringe benefit may have taken away several tax-savings options.

However, if you are paying a loan on a house you can still save on taxes," says G. Shiva Murthy, a tax and investments consultant.

Even with tax breaks scaled down on home loan payments since the last Budget, Couples can reduce their tax burden if the husband and wife are joint owners of the property. "While there is a ceiling on individual payments of interest on housing loans, when split between the spouses, the tax savings can be higher," he says. If the couple are in the high- income bracket, it makes sense to be joint owners of the house. For example, if a loan of Rs. 25 lakhs is taken for ten years at 7.5 per cent interest, the interest paid by one person comes to Rs. 1.8 lakhs which is more than the Rs 1.5 lakh ceiling. If it is jointly owned, one partner can claim tax exemption for the entire Rs. 1.8 lakh, this reduces the tax burden of the couple and they can save Rs. 9,000 on tax in a year, Mr. Murthy says.

He has a tip for all borrowers and not just for housing loans. "It is wiser to compare lenders on total financing costs and not just on the interest rates," he says.

Annual rates

Till a few years ago, most lenders whether banks or financing companies, calculated interest at annual rates instead of monthly rates, which has now become the norm. Opting for the latter saves money. Processing fees, advances EMIs or a stipulation there should be a low interest bearing deposit with the lender are conditions to look out for, he says.

Being an investment adviser, Mr. Murthy does not want to discourage investments in mutual funds, though their performance has not been that good. "There are insurance options tied to investments where the premiums paid may be steep but the amount assured remains safe," he says. Like mutual funds, the annual payments are invested and one can opt for a larger share in securities and the smaller portion in stocks or the other way around, depending on the risk one is willing to take.