How Housing Loan helps you save tax?

Chennai Super Kings (CSK) won the Indian Premier League last month in a great fashion and this win was indeed special as it came after 7 long years. Aditya and Rakesh had been having a great time watching the weekend IPL matches together. However, this Sunday, it was a bit different. Rakesh seemed in a bit of mood while they were having tea together.

Rakesh was always a happy and smiling chap and Aditya too sensed something wrong when he saw Rakesh like that.

“What happened, Rakesh? You seem a bit upset.” Aditya was concerned.

“Nothing really. Just that my landlord has asked me to vacate the house in a month as he is planning to sell. He is selling off the property as he is going to Australia to stay with his son. He has even offered me to buy that flat for Rs. 50 lakhs, but I don’t have enough savings. I am just worried about finding a new rented house.” Rakesh and Aditya were friends for a long time and Rakesh was also comfortable sharing his life with him.

“Just Rs. 50 lakhs? It’s a great steal at this rate, Rakesh. The market value of this flat is at least Rs. 70 lakhs. Just go for it. And as regards funding the purchase is concerned, go for a housing loan.” Aditya immediately jumped off the seat.

“And you know what, this housing loan will help you save taxes as well.” Aditya further added.

“Oh really? How housing loan lowers my tax burden?” Seeing some tax advantage, Rakesh was now seriously considering the option to buy the flat after taking a housing loan.

“With a view to encouraging people to have their own house properties, Govt. provides tax deductions on the interest on housing loan as well as the principal repayment of the loan.” The financial advisor within Aditya was now active.

“That’s nice. How much tax savings can be expected?” It seemed like the idea had really pleased Rakesh and he was in no mood now to leave the offer to buy the flat.

“As per the present tax laws, you can save tax against the interest amount that you pay on such a property. Importantly, even if the property is self-occupied, you can avail of this benefit. Since you will stay in the house, interest amount of up to Rs. 2 lakhs can be deducted from your taxable income and hence you can save up to Rs. 62,400 of tax. In fact, if you have a co-borrower on the home loan, he or she can also additionally claim the deduction of up to Rs 2 lakhs from his or her taxable income.” Aditya was using his financial acumen to get him more interested.

“And the tax benefit not only stops with this. The principal amount of loan repaid during the year also gets deducted from your income as per Section 80C of the Income Tax Act, 1961 once you take the possession of the house. However, this benefit is part of the overall tax saving options such as ULIPs, PPF, EPF etc, under that section and the ceiling thereon is Rs. 1.50 lakhs for all the tax savers in aggregate. In fact, in the first year of the loan, you can also claim your expenses towards stamp duty and registration of the house under Sec. 80c.” Aditya added to his earlier statement.

“Any saving is indeed a good saving. While I was worried about finding a new flat on rent, you have given me a nice reason to think for something better.” Rakesh was much excited now.

“So, when are you inviting me for a tea in your own flat?” Aditya quickly stole the moment and it ended up with smiles on both the faces.

Why banks use credit info when I have my savings account with them?

Twenty20 has always been pitched as the cricket format with the most crossover appeal. The success of this year’s IPL is living proof. Rakesh was indeed surprised on the performances by IPL Teams.

Yes, indeed. Anyways, even when our work makes us so busy in our own lives, these matches have just been giving us a chance to meet.

Oh, certainly. Anyways, you remember, I had applied for a housing loan. Even while the bank finally sanctioned my loan, it took them a century to process for it. They were saying that my credit history was now much old for them to process the loan faster. I don’t know why banks emphasize so much on historical data?” Rakesh was back on his learning curve.

Banks resort to credit reports for checking the past repayment history of the borrower. Credit reports show the information about existing loans and also the status of the outstanding amounts and in case any of such amounts are under default. This helps the banks to estimate the risk of default for the borrowers.” As always, Aditya was there for Rakesh’s questions.

Well, I can understand such an analysis for someone who is not an existing customer of the bank. I fail to understand why banks need to use credit information separately when I already have my savings account with them.” Rakesh shared a genuine concern.

That is indeed a valid point. However, even while you may hold a Savings Account with a handsome amount lying in it, your financial management and repaying habits are not clearly reflected through the pattern of transactions in the Savings Account. Banks need to factor in that how much of the regular monthly income is already committed for monthly EMIs, which they can estimate only once they have your complete credit data. Besides, in case you are utilizing the credit limits to the extent possible and paying only the minimum amounts due, that indicates your high reliance on the debt.All this information can only be fetched through credit reports and summarily reflected in the credit score. That is why banks give so much importance to the credit report data.” Aditya also made a good point in a bid to clear the confusion of Rakesh.

Credit reports certainly show off some valuable data for the banks. One should always be careful in dealing with the debts owed.” Rakesh was slowly getting a good hold over the subject.

“Just remember not to default on your EMIs and utilize debts only for productive uses.” Aditya closed the conversation on a crisp note.

Rakesh and Aditya were both smiling.

How do Credit Bureaus Work?

Rajesh and Aditya were again together, having some good time watching the IPL Trophy 2018. However, amidst the cricket talks, the conversation again shifted towards the credit score. Rajesh was indeed happy knowing the procedure to get the credit score in the last conversation. However, he could remember that the bank wasn’t able to find the score from one credit bureau but then finally caught hold of his credit score from another credit bureau. He was just wondering “How” and he instantly knew who will clear his doubts as always.

Every lender shares loan data with all credit bureaus generally within the first two weeks of each month. Each credit bureau takes its own time processing that information and refreshing it on your credit report and score. Further, it may be possible that the same set of information is processed in a different manner by different credit bureaus. So, it might be possible that one credit bureau missed your information or left it on grounds of being inadequate while the other credit bureau creates your credit history based on that information itself. Also how a credit bureaus searches your data in its own database depends on its own logic – remember Google vs Bing! These are some of the reasons why your record could be missing with one credit bureau but found in another.” Aditya was indeed happy to be Rajesh’s guide.

Oh, that’s quite complex. But why do banks share my data with credit bureaus? Is my data all secure? It seems like anyone can access my personal data.” As always, Rajesh was still far from being convinced.

RBI mandates banks to share this data with all 4 credit bureaus in India. The data collected and stored by the credit bureaus is kept under many layers of security. Your personal data and is accessible only to you or to a lender whenever you apply for a new loan.” Aditya was leaving no stone unturned to convince Rajesh.

Oh, that is good. It is always good to learn something new from you. The match wasn’t good, but this learning will indeed be helpful. I have much more to learn from you, but next time” Rajesh seemed happy now, and needless to say, convinced too.

“Yeah. Let’s keep something for next time. Now, it’s time to enjoy some tea now.

Aditya moved towards the kitchen to get some biscuits for the tea. Rajesh and Aditya were both smiling.

How to Check your CRIF Credit Score?

The last time Rajesh and Aditya met, they had a good session discussing the basics of the credit score. They were again together to enjoy the one-day IPL Match between CSK and KXIP. CSK won this match comfortably by 5 wickets but Rajesh seemed much happier. Digging a little, Aditya came to know that ABC bank had finally sanctioned Rajesh the housing loan after his credit score was traced from another credit bureau.

I owe you a party, my friend. It’s all thanks to the basics you made me aware of the credit scores. I went to the bank next day and possibly due to my discussions about the credit score, the banker searched more into my credit history. I was pleasantly surprised when he said that while he could not fetch my credit history from one of the credit bureaus, he could find my credit history and credit score in CRIF High Mark database. With a score of 755, it was easy thereafter.” Rajesh said all this in one go. He was not able to hide his excitement.

Aditya was happy to hear about Rajesh’s housing loan sanction.

“Oh great, a good score indeed. CRIF score is calculated by CRIF High Mark, India’s leading credit bureau, which has the largest credit bureau database of individuals and supports millions of lending decisions every month.”

But there must be a way to check this score by myself too. I must keep a regular track of my credit score now.” As always, Rajesh was excited about the new thing he was made aware of.

Aditya was happy to guide him again. It seemed like he had been waiting for this question since long.

Here are the steps to get your free CRIF Credit score:

  1. Open CRIF portal, https://cir.crifhighmark.com/
  2. Click on “Get Your Score Now” button.
  3. A pop up will open asking your email address for communication purposes. Enter your email address here to proceed.
  4. The next window will ask you about few details which will help CRIF High Mark identify you amongst the complete database. The details as may be asked are name, date of birth, mobile number, address and PAN or Aadhaar number.
  5. Once you review and submit the information, you will be asked one security credit question, which will be based upon the records so traced basis the information furnished above.
  6. If you are able to answer the security credit question correctly, your CRIF credit report is available to you for download.

You should also be happy to note that everyone is entitled to a free credit report and score from CRIF High Mark once every year. So, get your credit report without paying any charges.

Oh, that is good. I will definitely download my CRIF High Mark credit report once I get back home.” Rajesh was happy to again learn something new.

It’s time to enjoy the tea now. The rainy weather is calling pakodas to my kitchen now. I will not let you go before we enjoy that.

But yes, how could bank not find my credit report with one credit bureau while getting the same from another credit bureau.” Rajesh was in no mood to let Aditya go.

We always have a good time when we meet over the weekends. So, let’s keep this question for then.

Rajesh and Aditya were smiling now.

 

Know your Credit Score

IPL Trophy has gripped the country since the last month, more so since the game involves competing teams inclusive of international talent. Rajesh, an IT professional and Aditya, a Chartered Accountant, were also spending the day together watching the IPL Trophy. Even while they were put off by a dismal performance by their favorite team in that match, Rajesh started discussing the recent query he faced from ABC Bank after he applied for a housing loan.

Rajesh was visibly upset for his favorite team’s loss and also for the delay he was facing for his housing loan sanction.

“Aditya, amidst low score today by your favorite team, please tell me what is this credit score? My bank is unable to fetch my credit score. As such, my housing loan application is getting delayed as the bank wishes to gather more documents in support of my application.”

Credit Score is a score calculated on the basis of your repayment habits like paying installments on time, rolling over your credit card bills etc. For a lender, your credit score is your first impression, as your bank forms your opinion as a borrower on the basis of this score only. If one doesn’t have a credit card or any existing loan, the credit report will not have any data and as such, this person would not have any credit score.” Aditya, being a professional in the field and also his best friend was there to his rescue as always. Click here for more details on What do banks see when they look at your credit report?

I think I need to clear my basics. I am totally clueless about the subject. What’s the range for this score and what does it denote?” Rajesh seemed interested to know more.

Credit score is calculated once you have an credit history of more than 6 months. CRIF score ranges from 300 to 900, higher credit score reflecting better credit habits. So, an individual with a credit score 800 will get a loan more easily than one with a credit score of 650. . Aditya was happy to educate Rajesh about an unknown subject.

“So, what is it which I can say to be a good score? Or it’s all relative to credit scores of other individuals?” Rajesh seemed confused now.

“A credit score above 700 is what banks consider as good score. However, a lower score does not make you ineligible for a loan. Banks are just more cautiously sanctioning a loan then and hence, may ask for additional documents to process your application.” Aditya cleared his confusion happily.

“I am so relieved now. No wonder, I trust you for all my financial troubles. Now I know one more score apart from the cricket scores, the credit score. But I do need to know how can I check my score?” Rajesh was much more excited now.