There are several advantages in buying property early, age wise, to maximize on tax benefits
Also, you get the maximum benefit of the income tax deductions available against a home loan.
Interest paid on borrowed capital is allowed as a deduction while computing income or loss under the head ‘Income from House Property’. In the early years, the income level of most people is low, and so are the expenses.
So, you can make a small beginning. In case your spouse is working, both incomes can be clubbed for a higher home loan amount.
Moreover, in case you initiate the property purchase at say the age of 30, you can easily get a loan for up to 25-30 years.
Further, the EMIs are spread over a long tenure, so it is also relatively lower. The interest cost, however, will be more.
As your income level gets higher, and considering the capital appreciation on the property and the family’s requirements, you may sell it after four-five years and purchase a bigger property . The first property will provide a buffer for the purchase of the next one.
For example, assume you buy a property for Rs 30 lakh at the age of 30, and after five years, as your income grows, you can afford a higher EMI. Further, the capital appreciation is Rs 25 lakh and the property is now worth Rs 55 lakh. You can now sell it at Rs 55 lakh and buy another bigger property costing Rs 80 lakh.
The shortfall of Rs 25 lakh can be met through a new loan.
This way, the cycle can keep moving and at later stages of life you can end up creating a good asset base. Tax benefits You also need to consider the tax benefits available.
Through the early stages of life, they effectively reduce the cost of a loan.
On a self-occupied house, a deduction of Rs 1.50 lakh is allowed against interest on borrowed capital. The loan must have been taken to construct or acquire a house.
The construction or acquisition of the residential unit should have been completed within three years from the end of the financial year in which capital was borrowed. The borrower should furnish a certificate from the bank to which the interest is payable on the capital bor rowed, specifying the amount of interest payable.
The interest payable for the period prior to the previous year in which the prop erty was acquired is also eligible for deduction.
Such interest is deductible in five equal installments commencing from the previous year in which the house was acquired or constructed. The first installment is deductible in the year in which the construction is completed or house acquired, and the balance four installments in the four subsequent years.
In case you borrow early in a financial year, you can claim more interest which is paid during the year. In case of a selfoccupied property, it is restricted to Rs 1.50 lakh.
However, there is no limit in case of a property that is let out.
The cash flows in terms of savings and swapping rent with EMIs is another major advantage. Instead of rent, you can pay EMIs and own the property as well. -AG IT IS ADVISABLE TO PLAN THE PURCHASE OF A PROPERTY AT AN EARLY QUICK STAGE IN LIFE. THIS WAY, YOU CAN FOLLOW SOME FINANCIAL DISCIPLINE AND ENSURE EASY CREATION OF MORE ASSETS BITES