NaAtMaD – News and Articles that Make a Difference

Suppose an individual with an annual income of Rs 300,000 decides to opt for a home loan worth Rs 700,000 for a 20-year tenure. The home loan interest rate is assumed to be 8%. The EMI for this loan works out to Rs 5,856 p.m. This means that the individual pays Rs 70,272 as EMI every year (i.e. Rs 5,856 x 12 months). See the table below:

As the table shows, in the first year, the interest component in the EMI is Rs 55,464 and the principal amount constitutes the remaining Rs 14,808. As per Section 80C , the principal amount worth Rs 14,808 is allowed to be deducted from the individual’s income of Rs 300,000 as a ‘deduction.’ The interest component of Rs 55,464 is also allowed as a deduction under Section 24.

It can also be seen that though the EMI remains the same throughout the tenure, the interest and the principal components, which form the EMI, keep changing every year. For example, the interest component for the second year is Rs 54,236 and the principal is Rs 16,036.

Individuals should note that the interest component is high in the initial few years after which it reduces significantly in the later period.

Source Rediff