HOME LOAN REPAYMENT

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 May 2011 I HAVE AVAILED HOME LOAN OF RS.25,00,000/-. THE REPAYMENT TOWARDS PRINCIPAL IS RS.1.00.000/- AND TOWARDS INTEREST IS RS.3,50,000/-. MY TAX BRACKET IS 30% PLUS EDU CESS HAVING SALARY INCOME. OUT OF REPAYMENT 70% IS PAID BY ME AND 30% BY MY SON WHOSE TAX BRACKET IS 10% PLUS EDU CESS.

MY QUESTION IS WHETHER IT WILL BE ADVANTAGEOUS IF I REPAY THE LOAN IN FULL CONSIDERING THE TAX ADVANTAGE ON INTEREST REPAYMENT AND DISADVANTAGE OF PAYING INTEREST ?

CA Navin Jain

CA Navin Jain (Expert)
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09 May 2011 CLEAR THAT TOUR SON IS CO OWNER OF THE PROPERTY AND LOAN ALSO IN THE BOTH NAME

Querist : Anonymous

Querist : Anonymous (Querist)

10 May 2011 YES SON IS CO OWNER AND LOAN IS IN BOTH NAME

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 Repaying a home loan has both tax and financial implications. Here’s a breakdown of how these factors play into your decision:

### **Tax Benefits of Home Loan Repayment**

1. **Interest Deduction**:
- **Section 24(b)**: You can claim a deduction of up to ₹2 lakh per annum on the interest paid on the home loan under Section 24(b) of the Income Tax Act.
- **Shared Deduction**: Since both you and your son are co-borrowers, the total interest paid can be claimed as a deduction by both of you. Therefore, if your combined interest exceeds ₹2 lakh, you can each claim ₹2 lakh, assuming the total interest is above the threshold.

2. **Principal Repayment Deduction**:
- **Section 80C**: The principal repayment on a home loan qualifies for a deduction under Section 80C, subject to a maximum limit of ₹1.5 lakh per annum. This deduction is available to both co-borrowers, so you and your son can each claim this deduction if the repayment amount allows it.

### **Tax Implications Based on Your Scenario**

1. **Interest Payment**:
- **Your Bracket**: 30% plus cess.
- **Son's Bracket**: 10% plus cess.
- Given your higher tax bracket, your tax saving from the interest deduction will be more significant compared to your son’s.

2. **Principal Repayment**:
- Principal repayment is capped at ₹1.5 lakh under Section 80C. If both you and your son can claim this, the maximum combined deduction is ₹3 lakh.

### **Comparing Repayment and Tax Advantages**

1. **Total Repayment and Tax Savings**:
- **Interest**: The higher the interest you pay, the more you can claim as a deduction. Given your higher tax bracket, the deduction will save more tax.
- **Principal**: The principal repayment provides a flat deduction of up to ₹1.5 lakh per person, which benefits both you and your son.

2. **Financial Implications**:
- **Interest Cost**: Repaying the loan early will reduce the total interest paid over the loan term, which might outweigh the immediate tax benefits.
- **Liquidity**: Ensure that early repayment does not affect your liquidity or emergency funds.

### **Scenario Analysis**

1. **Full Repayment**:
- If you repay the loan in full now, you will save on the total interest cost. However, you will lose the ongoing tax deductions that you could have claimed over the remaining loan term.

2. **Continuing Repayment**:
- Continuing with the loan repayment allows you to benefit from tax deductions on interest and principal repayments. However, you will continue paying interest, and the total interest outgo might be higher over the loan term.

### **Recommendation**

**1. Evaluate Financial Position**:
- Assess whether you have sufficient liquidity to make the full repayment without impacting your financial stability.

**2. Calculate Tax Savings**:
- Determine the total tax savings from the interest deduction versus the cost of the interest you will incur if you keep the loan.

**3. Long-Term Costs**:
- Consider the total interest cost over the life of the loan versus the immediate tax benefits.

**4. Professional Advice**:
- It may be beneficial to consult with a financial advisor or tax professional to perform a detailed analysis based on your specific financial situation and tax implications.

In summary, while repaying the home loan in full may offer immediate savings on interest costs, maintaining the loan allows you to benefit from ongoing tax deductions. Balancing these aspects depends on your financial goals and liquidity position.