Salaries, Taxes and Home Loans

As one’s salary goes beyond Rs 2 lakh/annum, the rest becomes taxable. The financial advisers and tax planners say the only recourse is to take a home loan since it gives an additional buffer of Rs 1.5 lakhs which can be paid as interest towards your home loan.

Like in the USA, the housing market’s become purely speculative here in India too as everyone believes that the only way for the house prices is up. (as rates have doubled in the last 3 or 4 years in many sub-urban areas of Chennai)

As the economy grows and more money comes in the way of the salaried class (particularly those in IT), the taxation policy leaves the salaried class with the only option to invest in home loans. Due to this, the real estate/construction business grows which further fuels overall economic growth. And the government is happy declaring that we have 8-9% growth or some such figure. As you can see, it is a viscious cycle and the govt is taking us for a ride here.

The hard earned money either goes as taxes or as some bank’s EMI interest spread over most of our earning years. The real estate guys are the ones making all the money and all the risks once you buy a house/flat are borne by you. What if there is a US recession? God forbid but no one seems to be asking the question. A loan period of 15 to 20 years seem to be too big a period.

One good thing coming out of all this is that the educated salaried class is always up on its toes, working hard (first to buy a house, then to repay the loan) and not sitting idle/being content with what they have.

If you are to invest in a home, I think it is better to buy it either at city’s outskirts where the inflation/demand aint there that much or in your native city/town/village for a moderate sum.

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2 Responses to “Salaries, Taxes and Home Loans”

  1. vinod v v Says:

    Aravind,
    You forgot to ask the question, who all pay tax?
    salaried working class is the majority, what about Businessmen do all of them pay the tax properly

  2. maxiblog Says:

    Thanks for stopping by, vinod. yep, that is another side of the story. the income tax net covers well the salaried class only.

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