‘Is home loan a saving?’ Finance Secy’s answer leaves Chidambaram aghast

P Chidambaram has asked the Finance Secretary to re-examine his theory on housing loans. 

  • The 77-year-old politician said, the payment of interest and the instalments of the loan is indeed an expenditure, but it is an expenditure that is converted into an asset, which is a saving.

Rajya Sabha member P. Chidambaram takes a jab at Finance Secretary T V Somanathan on his statement in an interview where he said, a housing loan is not a saving. To this, the Congress leader has asked Somanathan to re-examine his theory on housing loans. The Centre currently offers a host of tax benefits on both home loans principal and interest amount.

He added, “I wonder how many people will agree with the Finance Secretary.”

In a recent interview with The Hindu, while explaining the structure of tax deductions, the Finance Secretary said, half of them are for savings and half of them are for dis-savings like housing loans or interest on housing loans. (Informations only.com)

Is the housing loan a saving? Somanathan added in the interview, so overall macro-economic impact, it’s not a savings push at all but merely a push towards certain things. The government wants you to do housing, insurance, or pension. But it’s not necessarily a savings push or influences the savings rate in the country.

But P Chidambaram has a different opinion on housing loans.

In a thread on Twitter, Chidambaram went on to explain further in detail to prove his point of why housing loans are on a certain level of “savings”. (Informations only.com)

The 77-year-old politician said, the payment of interest and the instalments of the loan is indeed an expenditure, but it is an expenditure that is converted into an asset, which is a saving.

Further, Chidambaram explained that “suppose you spend the same money on a holiday or at a race course: there will be no asset at the end”

“The Finance Secretary should re-examine his theory that a Housing Loan is not a saving,” Chidambaram concluded.

It’s not just Chidambaram and Finance Secretary who have different opinions on housing loans being a “saving” or “not”, Twitteraties too expressed mixed views.

A user replied to Chidambaram, explaining, the home loan principal is part of Section 80C of the Income Tax Act. Under this section, an individual is entitled to tax deductions on the amount paid as repayment of the principal component on the housing loan, an amount up to Rs.1.50 lakh can be claimed as tax deductions. (Informations only.com)

While a startup mentor replied saying, “I have an even more fundamental issue with taxing individuals on their revenue (aka Salaries, etc) and not on profit ( aka surplus towards savings). Corporates enjoy that. Why not individuals? Compliance is easy. Tax base automatically increases. And you can have varying slabs.”

On the other hand, a retired top nationalised bank executive, Amar Deep Sinha, agrees both Finance Secretary and P Chidambaram are right on their statement. He replied on Twitter, “While value of the house appreciates, you get deduction u/80C on repayment of loan and also 100 % deduction on interest paid on borrowed capital upto 2 lakh, plus Income if it is rented out. So both Fin (Sec) & you are right depending how u take it.”

Tax benefits on home loans:

Home loans are borrowed from banks, NBFCs, or other financial institutions. And the borrowed money is repaid in the form of equated monthly installment (EMIs) which includes a portion of the principal amount and added interest on the loan.

At present, under section 80C, a deduction of ₹1.5 lakh can be claimed on the home loan’s principal amount repayment every year. But to claim this tax benefit, one should not sell their house property within five years of possession. (Informations only.com)

Further, you can claim a deduction for stamp duty and registration charges under section 80C within the prescribed limit which is ₹1.5 lakh. However, this can be claimed only in the year these expenses occurred.

Meanwhile, as per section 80EE, a deduction of ₹50,000 is allowed to individuals towards interest on a loan taken for the acquisition of a residential house property. Also, an individual can claim a deduction of ₹1.5 lakh under section 80EEA in addition to a deduction under section 24 (b).

Notably, in the case of a let-out property, there is no limit on the quantum of interest which can be claimed as a deduction under section 24(b​)​. However, in the case of a self-occupied property, the limit is ₹2 lakh or ₹30,000, as the case may be.​ (Informations only.com)

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