Feb 142013


Home loan is the amount that the individuals seek from the bank  to purchase a residential property. The bank usually disburses the amount through a cheque to the person who seeks the loan in his name.However, there is some criteria that the bank follows while granting the loan. The loan seeker must pay the amount and the interest to the bank . The home loan is mainly composed of two parts:

  • The principal component
  • The interest component

The loan seeker pays back the principal amount taken from the bank as a loan; as well as he must pay the interest on this principal.The bank grants loan to the individual once the criteria under consideration is fulfilled.The principal amount is exempted from being taxed under the provisions of section 80C. The  interest on this amount is also deductible from the taxable income under the section 24 .The loan seeker can avail of the tax benefits under these two sections of the Income Tax Act.

This means that the part of the income that the individual uses to pay the interest on house loan as an EMI(equated monthly installments) is exempted from taxation.The principal repayment shall be deducted under section 80C only if the loan seeker is staying in the same house for which the loan is issued.Also, if the person is not residing in that house because he/she is working out of  town, in that condition also  the principal repayment deduction will take place.In other conditions, if the house is not occupied by the owner or is under construction , the deduction under 80C is not possible. The maximum limit for deduction under this section is Rs.1,00,000. EPF, PPF, ELSS, LIC and there are other ways of ensuring deduction under the section 80C in order to save tax.

The EMI that the loan seeker pay towards the interest on home loan can also be exempted from taxation under the section 24 b.The principal amount is paid with interest in installments ;the total amount for the interest portion  over the entire year is exempted from tax and  from a deduction under the section 24. This section covers the interest on amount that is borrowed in order to acquire a property, or facilitate its  construction, renovation or repair. However,the penal interest on housing loan is not allowed as a deduction.

Similarly, if the individual chooses to pay this loan by taking a fresh loan, then the fresh loan is allowed as a deduction under section 24 if and only if the fresh loan is wholly and solely used to pay the original loan.There is no limit as to the number of houses under this section; interest payment on as many home loans is allowed but the limit is Rs 1,50,000 only.The interest payment is directly deducted from the income and is set aside from the taxable income. However, this section provides exemption for home loans for self occupied property only.

So, next time you plan to buy a house and need funding ,you need not think twice to take a home loan from the bank. After all  it’s not just an aid to your funding for the house but its also  going to help you save a lot of your income from the tax.

Feb 042013

Tax Saving Tips – Investments and Deductions Under Section 80C

Your hard earned income is subject to taxation under the Income Tax Act. You can save a part of your income as a tax deduction; thus reducing your total taxable income. Such tax deduction options are available under the various sections of it act. Section 80 c provides that Rs 1 lac per annum can be saved from being taxed by investing in such instruments:

  • Public Provident Fund (PPF)
  • National Savings Certificates (NSC)
  • Contributions to Employees Provident Fund (EPF)
  • Fixed Deposit (FD) with Banks having a lock-in period of five years
  • Equity Linked Savings Scheme (ELSS) of Mutual Funds
  • Unit Linked Insurance Plan (ULIP)
  • Life Insurance Premiums
  • Repayment of Housing Loan (Principal)

It is applicable for individuals irrespective of their tax bracket and annual income. These are the tips under this section that will help you save your tax from your income.


It is the risk free government tool with a lock in period of 15 yrs and is beneficial for those seeking long term investment. You can invest up to Rs 1lac in all at the current rate of 8.8%.  . The interest earned here is not taxed. The minimum investment in PPF is Rs 500 per year and the maximum investment is Rs 1,00,000/- per year. It can be a lump sum investment or can be divided in to a 12 transaction per year. A special benefit that comes along is that in case of insolvency it will not be attached to the assets of the insolvent. PPF can be used for minors as well, who can avail benefit of the same when they turn 18.


Very secure since it is backed by the government. Interest rate for 5-year NSC delivers 8.6% whereas 10-year NSC offers 8.9%. Interest earned is subject to tax and there is no limitation on the amount of investment. NSC is eligible for use as a security in order to derive a loan from the banks. Minimum amount is Rs100.


Employees provident fund is the deduction from the salary (minimum a 12%) made by the employer into a provident fund account. This deduction is mandatory on the earned income as an aid to both private and non pensionable public sector employees. A fraction of your monthly income is deducted and gets accumulated till the time employee attains the retirement age. After the age of 55, the employee can withdraw full amount at any time. Apart from monthly deduction the employee can contribute extra through VPF voluntary contributions.


In a Fixed Deposit Saving Scheme a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. For tax free bank deposit under section 80c, lock in period of 5 yrs is a must and premature withdrawal is not allowed. The amount under this FD is deducted from the taxable income and the maximum permissible amount is Rs1 lac. This amount can be undertaken for a loan. A safe investment option beneficial for those who want to lock their money for long. However the interest received on such deposit is taxable.


This market linked investment comes up with a 3 year lock in period. ELSS is your helping hand in saving tax offering high returns. With low expenses, this option ensures a high liquidity and growth in long term. Withdrawing before a 3 year period is not allowed.  Also ELSS returns are not guaranteed as they are market linked investments.


 ULIP is the risk free investment option that lets you flexibly invest wherein part of the premium pay goes toward the sum assured and the balance will be invested in whichever investments you choose depending upon the scheme-equity, debt or a mix of the both. The premium that is paid under these schemes is considered under this section. It can be partly exposed to stock market. ULIP schemes come in insurance cover forms as well as investment options.


This includes the premiums that you pay for the LICs or insurance policies under other private insurance companies. The policies ensuring life of self, spouse or any child are considered. Also, insurance premiums paid for parents, is covered for deduction under 80C. Thus, the total amount for all premiums from all eligible policies can be included as the deduction.


Under section 80c , the principle component that you pay for your home loan is eligible for deduction. The yearly amount that is spent under the repayment of housing loan as the principal can be deducted from the taxable income.