house to rent_or_ buy

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My HOUSERent or

Buy?


Benefit on Buying House

• Property value is appreciating

• Property can be pledged to take loan latter

• Pride of owning a house

• Tax is saved on principal & interest

• Rental income possible post retirement


Tax benefitUnder Rent

– 40% of Basic Salary / HRA /

Rent Paid in IN EXCESS OF

10 % basic - which ever is

lowest

– 50% of basic in case of

metros

Under Housing Loan

– Tax Benefit on Principal (Amount

Exempted)= Rs 100000 @30%

– Tax Benefit on Interest

(Amount Exempted) = 150000

@30%


Benefit on Rented House• Amount saved can be invested at higher returns

• Better life style, flexibility to spend and save.

• Can switch to better locality and larger house based on salary

increase

• Tax saved on rent expense

• Can buy house on down payment latter

• No maintenance cost

• There can be savings on difference between actual rent and

HRA


Min Max Min Max Min Max Min Max

850,000 2,000,000 3500 10000 8,126 19,120 10,319 24,280

Wealth Tax 1% 8,500 20,000 708 1,667 708 1,667

Maintenance Cost of Own House

1% 8,500 20,000 708 1,667 708 1,667

6,043 12,453 8,236 17,613

Yearly Payouts 42000 120000 114,512 249,440 132,328 311,360

72,512 149,440 98,828 211,360

2,104,445 4,337,051 8,017,104 17,145,902

Min Max

750 1500

100 500 344.0366972

3.5 10

956 1214 286800

18.55%

Market returns on amount saved for respective periods

Reference

Amount Saved When Rented

Amount Saved Yearly When Rented

EMI/lakhHistorical Market

Retuns Sensex returns since 1969 is considered

Rates

Building

Land

Rent

EMI 10 years EMI 15 yearsParticulars

Area of house (sq feet) 1000

Build Rent


Assumptions

• House bought for own occupation

• Amount saved are reinvested at market returns

• Profile considered is that of a salaried employee

• Down payment made for acquiring the house is not

considered as it may be equal to deposit for the rented

house


Assumptions…• Rent increase is not considered. Neither is the cost of

increase in maintenance and increase in HRA. As

these can be considered to be negated against each

other

• Interest rate risk is not considered

• Market return risk is not considered as the terms (10

years , 15 years) are sufficiently long

• Salary structure is considered to be flexible for tax

planning

house to rent_or_ buy

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