I will tell you why this topic all of a sudden. I was checking my salary slip for this month and what I saw shocked the bells out of my ears. I have paid a tax of over 25k for my monthly salary and another 14k+ for my small little bonus. In all I have paid over 39k as taxes in this month. To think of the salary I had begun with in 2004 June - about 30k in all. And to think of all the pains I had taken to earn my money - the night outs, listening to all the sermoning from the boss, fighting with the ring leaders of the business group to save my group and the most unpleasant of them all, my fight to keep my recent marriage alive. If you are a girl maybe you can understand the plight of my wife, but I am sure no one will understand my plight.
So, I have been thinking since a long time that to offset the high tax liability I must purchase a house. A house would ofcourse also mean a lot of other expenses like furniture and TV and other household goods. But I had never dared to do a calculation as to how much I would actually save by just taking the tax benefits from the house. So my dad and I did a small back of the envelope kind of calculation yesterday. And guess what....
I have discarded the idea of buying a good house in Mumbai. Reasons for it I am describing below.
First let us just take the costs to be incurred in buying a house. Assume that you would, like me, have a salary whose light just keeps exstinguishing by the time you reach the month-end and that you look forward to your next salary, just the same was as someone on the doors of hell might be looking forward to God almighty. Now assume that the maximum you can take out of your salaries after removing all the fat from your buttocks and removing any kind of exertion from your daily routine lest you eat more, is Rs. 40000. I know it is big money, but since you all are IIMites and IITians and all that, I am sure you CAN rake up this much. Now if you just use the PMT formula of excel to find out how much EMI you need to pay for a loan of say 40 lakhs (which is the approx rate of houses in distant suburbs of Mumbai like Vashi) you will find that the 40k amount I had conjured up over there is actually matching the EMI value for a 40 lakhs loan. Happy!! :)
40 lakhs is a good amount of money, and I am sure you can buy a decent house. But wait a minute - buying a house is not just buying a house. It also involves a lot of other costs - one time brokerage, monthly maintenance, registration and finally you will probably have a house. But to make it a home you need to put in more money on furniture and electronics. In addition you lose the tax savings on HRA.
The benfits include tax saving on a max of 1.5 lakh per annum paid as interest on the housing loan and if you are not already investing in any other tax saving instruments then some amount of saving on the principal you have paid. Principal component has a limit of 1 lakh, but the PF your company cuts every month also goes into this 1 lakh and hence the actual saving is quite negligible.
For me I found that the savings in tax is to the tune of 2200 per month. I didn't find the idea any good considering I would have shell out so much for buying the house.
Really, feeling so weak at seeing all the money go... :(
