Sumit Awasthi, along with his wife and six-year-old daughter, live in a rented house in Delhi and have been thinking of buying a house for the past several years by taking a loan. Amidst the proliferation of Kovid-19, his broker suggests that this is the best time to buy a house, as the price is falling.
Sumit wants to know whether it would be better to buy a house or stay on rent. Every Indian dream that he has his own house. The home-buying trend has grown rapidly in the last two decades due to banks and non-banking financial companies providing home loans. Since taking a home loan provides interest and tax rebates at the time of repaying the principal, it is also convenient to buy a house.
If Sumit buys home by taking a home loan, then he will fall into the category of innumerable Indians who have fulfilled the dream of buying a home loan. The other type of people is those who cannot afford to buy a home in another city far away from their city, hence living on rent.
Both of these options have advantages and disadvantages. And it cannot be said which of these two options is good, because buying or renting a house depends on a person's decision and ability. But EMI has not only made it possible to buy a house, but it is also financially beneficial, which has been taken advantage of by innumerable Indians.
Advantages of buying a house
By buying a house, you create a property that is your own, and this increases your total wealth. Apart from this, after buying a house you do not have to worry about paying rent, nor fear that when the landlord asks you to vacate the house or increase the rent.
Apart from the facilities, you can also claim tax concession on taking a home loan. Under Section 80C of the Income Tax Act, you can claim tax exemption of up to Rs 1.50 lakh on your principal. Stamp duty and registration fee can also be included in this, but this can be done only once.
Similarly, under Section 24, you can claim a rebate of up to two lakh rupees on the loan interest. But this rebate can be achieved only if the construction of the house you purchased is completed within five years of taking a home loan. If the construction work is not completed in this period, you can claim an exemption of Rs 30,000 in tax.
Apart from this, for the first time, homebuyers can claim a tax exemption of Rs 50,000 every year under Section 80C on the purchase of a house worth less than 50 lakhs, but the condition is that the home loan should not exceed 35 lakhs.
Benefits of renting
There are also advantages to staying at a rental house. Of course, you are not paying a home loan, but you can take advantage of HRA (House Rent Allowance) and you also have the facility to rent one house to another. Renting is good for people who have a transfer job and who have homes in cities where they do not live.
Living on rent is also convenient for those who believe that repaying debt is difficult. If you are claiming HRA, then you should know that it is the least of these- (1) HRA received by the employer; (2) Actual rent paid is less than 10 percent of the monthly basic salary; (3) If the taxpayer resides in the metro city, the rent is 50 percent of the basic salary; (4) If the taxpayer resides in a non-metro city, the rent is 40 percent of the basic salary.
Sumit should examine his financial situation before buying a house. If he is thinking about taking a loan, then he should assess his job and future income, because the impact of Kovid is going to be ahead. It is dangerous to take a home loan just by being attracted by cheap loans and tax exemptions. If you take a loan, then make sure that you will repay the loan in 10-12 years instead of 15-20 years.