04 KALEIDOSCOPE ERGO Monday, January 12, 2009

Ask your query

Q: I visited the United Kingdom on a project
for my company. I saved some money from
my daily allowance. Will I have to pay income
tax when I get this money to India?
HOUSING LOAN
as tax saving tool –
Kadhirvel – TCS, Chennai
Answer: Kadhir, allowances will not be taxed
if you actually spend them and show proof of
expenditure by showing bills. If you get it back
in the form of physical cash it will be added to

myth or reality?
your income and taxed.
Q: I have been investing in four SIPs for the
past 2.5 years. Seeing the sensex falling so
drastically I realise I have lost quite a lot of
money, should I stop investing now?

Saranya – CTS, Coimbatore
Answer: Saranya, it is better you hold on the
funds and let them recover unless you need
cash urgently. Also, the good thing is that you
have used the SIP route and would benefit by
continuing now. If you stop now then you will
loose the opportunity you get by rupee cost
averaging.
L
et’s look at housing loan as a for the lender.
tax-saving tool. The tax benefits
come in two ways: The principal What If I Don’t Take a Housing
component of the repayment Loan?
will give benefits under Section 80C If you don’t take a housing loan,
(See Finergo dated 5 Jan 5 2009); and you will pay an additional income
the interest component under Sec- tax to a maximum of Rs.50, 985 (even
tion 24 up to an amount of Rs. 1.5 if you are in the highest tax bracket
lakh. Salary higher than Rs. 10 lakhs per
The major benefit thus comes year). Others will pay much lesser

Mini Quiz from the interest component. Since

taxable income reduces to an extent
of Rs. 1.5 lakhs, there is a huge re-
The first person to send in gets a free executive duction in income tax too.So is
diary housing loan a wealth creator or de-
Q1: FMP is the acronym for stroyer? Finerva believes that a hous-
Flexible monthly payments ing loan is a drain on your wealth;
Fixed maturity plan here’s how.
First monthly payment
Floating monthly payment HRA becomes taxable
Q2: EPS used in stock market is the acronym The minute you take a housing
for loan for tax benefits, the HRA com-
Equated Payment scheme ponent becomes fully taxable. This
Equally Priced Shares amount gets added to your income.
Earnings Per Share The irony is that as time goes on,
Exempted Proprietary Shares your interest component keeps com-
Send your answers to finergo@goergo.in or SMS ing down but your HRA keeps in-
your answers to 92813 98889. For example if you creasing with your salary. You
choose A as the answer to question 1 and B as cannot claim your HRA unless you
the answer to question 2 type it as 1A2B and
send it.
shift to another city.
Interest Outflow does not come
back
The benefits from all the compo-
nents in Section 80C (except the
children’s education fees) come
back to us as they are investments –
including the housing loan principal.
But interest on the housing loan is
an expense. It goes out, never to
come back to us. In fact it is income
tax.
Even in the highest bracket, by not
taking a housing loan, you have a
surplus of close to Rs. One lakh at
your disposal for additional invest-
ment. Remember investments come
back to you after growing. That’s
wealth creation.
Summary
Though housing loan is used by
most salaried people to save tax -
which it doesn’t - it is negative on
wealth creation. This is because of
the structure of Section 24 of the In-
come Tax Act which gives the benefit
from a housing loan form the inter-
est component only. Interest being
an expense does not add to wealth. ■

Word in Word
Find out all seven-letter words that can be de-
rived using only the letters of the following
words.
1. Diversified
2. Investment
3. Portfolio
4. Financial
5. Insurance
Answers on Page 7