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The best tool to save income tax and maximise your wealth – Home Saver Housing Loan Scheme

 

Taking Home saver account offered by many bank Viz SBI (SBImaxgain), HSBC (Smart Home), SCB (HomeSaver), IDBI (HomeLoan Interest Saver), Citi Bank (Home Credit) instead of normal housing loan will have many benefits and you can use this as a tool to save income tax.

 

In our other article ‘Looking for a Housing Loan? Don’t miss opportunity to go for Home saver, smart home scheme’ we explained what Home Saver or Smart Home Scheme is and how it works.

 

In this article we explain how effectively you can use home saver scheme to save money, tax and maximise your wealth.

 

 1. Save Interest outflow which in turn increases withdrawal limit:

Unlike normal housing loan, Interest will be calculated against outstanding balance on a daily basis and is debited at the end of the month.All surplus money deposited in the home loan account goes towards Available Balance. Even if the surplus amount is kept only for a few days during the month, it helps reduce the interest component of the EMI for that month. Since the interest is calculated on the outstanding balance instead of outstanding principal, any excess amount (i.e., EMI – Principal – Interest) is added to the Available Balance.

 

2. You can withdraw surplus amount (Available balance) any time and use Home loan account as savings Bank Account:

Best part of the home loan account is, you can treat it as savings bank account and route all transactions through it so that money will be in the account for maximum period of time and thus helping you to bring down your interest outgo. You can use home loan account to do funds transfer (NEFT, RTGS etc.), withdraw cash through ATM and make payment of bills through cheque book or net banking facility. Available Balance is the limit for all such transactions.

 

3. Liquidity:

Well the primary benefit of House saver account is to keep your liquidity intact which is absent in the normal housing loan account and still bring down your interest outgo. To understand it better, you can imagine a situation where you are running a home loan of Rs. 50.00 Lakh and you have surplus amount of Rs. 5.00 lakhs with you to prepay. In normal home loan, you can prepay surplus amount of Rs. 5.00 lakh & adjust towards home loan and thereby you will lose the benefit of liquidity of Rs. 5.00 Lakhs. However in case of house saver account your liquidity will be intact and you will be allowed to withdraw surplus amount.

Take another example, your loan amount balance is Rs. 50.00 lakh and your parked surplus amount is also Rs. 50.00 lakh. That doesn’t mean that your loan account is closed. Only interest out go will become Zero. Your liquidity will be intact till you request your banker to adjust your parked surplus amount towards outstanding loan amount and get your property papers back.

 

4. Use as contingency fund in case of financial emergency

As you can’t predict unforeseen circumstances, the home saver account will help in a great way in the event of financial emergency. You need not run around for bank loan or arrange funds from others.

 

5. Better yield than Fixed Deposit or other investment option:

Parking surplus money in the home loan account is a superior option when compared to investing surplus amount in fixed deposits because the latter attract tax deduction at source. Post tax earnings from fixed deposit are far less than the interest what you are going to save if you park same amount in the home saver account.

 

6. Invest surplus amount (available Balance) if you get better investment opportunity:

Take an example, your loan amount balance is Rs. 50.00 lakh and parked surplus amount is Rs. 40.00 lakh and if any time you find better option to invest in real estate or other investment opportunity which gives better yield than housing loan interest, you can always withdraw surplus amount and invest in it. The best part of it is you will continue to get Housing loan interest deduction benefit upto Rs. 2.00 Lakh available for self occupied property if you originally obtained loan for said purpose. You would not have got tax benefit for interest payment if you would have obtained fresh loan of Rs. 40.00 Lakhs for buying site. This is one of the ways of maximising your wealth.

 

7. Invest in mutual Fund and continue to get tax benefit on housing loan interest payment.

Though this is a good innovative loan product, keeping money in this account may not be profitable on all circumstances; rather it is advisable to invest in mutual funds by way of SIP, which can give better returns. At the same time you will continue to get tax benefit on housing loan interest payment. It is worth mentioning here that long term capital gain on appreciation in mutual Fund is exempt from tax.

 

(Download housing loan interest calculator to check how it works and how interest calculation is different in home saver or smart home account when compare to normal housing loan)

 

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About CA Prakash Chartered Accountant Bangalore

CA Prakash Chartered Accountant Bangalore
CA Prakash is a practicing chartered accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]
  • Aneesh Varghes

    Hi Great Article, simplified explanation as well. I have downloaded calculator excel, but it seems to be working for max tenure of 180 installments, though i have edited the Loan Tenure to 240. Would that be possible to make this excel to calculate more than 180 installments

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