# Can calculation of the amount of tax I will need to pay if I take a home loan be done if I present actual figures?

This is related to the India. So an answer pursuant to the Indian IT rules would be much appreciated.

Let's say my income details are:

``````Gross Annual Income: Rs.10,50,000
HRA received from employer: Rs.15,000 per month
Rent being paid: Rs.12,000 per month (non-metro city)
PF being deducted: Rs.4,500 per month
Meal card: Rs. 900 per month
Medical insurance for self, spouse, children: Rs.0 (taken care by the employer)
Medical insurance for parents: Rs.2,100 per month
``````

I have nothing else that would come under savings (No mutual funds, no NSC, no Superannuation fund etc)

Now if I take a home loan of about say Rs. 27,00,000 (I assume the EMI for it would come to around Rs. 23,000 - Rs. 25,000), how much of this can be used to reduce the amount of tax I'm paying at the moment?

Now if I take a home loan of about say Rs. 27,00,000 (I assume the EMI for it would come to around Rs. 23,000 - Rs. 25,000), how much of this can be used to reduce the amount of tax I'm paying at the moment?

It is not straight forward. In the EMI you pay; there is an interest component and a principal component. Assuming the house is ready possession; in a different city and your first house.

You can claim upto Rs 1,50,000/- for principal amount under 80C [including PF, ELSS etc]. So assuming PF is the only exemption you are availing; Rs 4,500*12 = 54,000/- you still have Rs 96,000 that you can claim as exemption.

The interest component is also eligible for deduction under section 24 upto Rs 2,00,000/-.

So assuming your EMI of around 25,000; rough estimates for first year the interest component will be Rs 2,40,000 [can only claim Rs 2,00,000 max] and principal will be around Rs 50,000.

This means from your income you can claim a benefit of around Rs 2,50,000; so your tax should come down by approx 2,50,000 * 0.3 = Rs 75,000.

• So that would mean my tax deduction would reduce by about 75000/12 = Rs.6k per month? Right now I'm paying around 5k per month..so there's a difference of 1k additional amount Jul 13 '18 at 11:51

Not Indian tax, which may be crazy or something, but logic says: NOTHING.

A loan is income neutral. Interest paid on a loan per se is also, except in business scenarios where you can offset income with the interest paid (i.e. rental income vs interest paid).

But the fact that you take a loan means nothing. A loan per se is no income.

• Although I am not the down-voter, most jurisdictions have tax benefits on home loan / mortgage. Jul 13 '18 at 11:15
• In Indglish, a home loan generally means a mortgage, and there are special rules regarding deductibility of the mortgage interest paid from the taxable income, just like there special rules are in the US. In short, Indian tax laws, though certainly more convoluted than US tax laws, are not deserving of the soubriquet of "crazy". P.S. I did not downvote your answer. Jul 13 '18 at 11:15
• Yes and no. Ths is not the credit or mortgage, but this special rules are tied to the purchase OF A HOME. They are a special case. You will not get a tax deduction on taking a loan on an already paid home, for example. Jul 13 '18 at 11:49
• @DilipSarwate Please read again. I never called indian tax laws crazy. I said they MAY be crazy - they may well not be. I just pointed out that they may be very idiotic at some particular point. Jul 13 '18 at 11:50
• There is nothing called Mortgage in India. Home Loan is the term used in India and means same as Mortgage in US or some other geographies. If you take a loan on paid up house; it is called LAP [Loan Against Property]. Jul 13 '18 at 12:09