The perception of settling down has always been associated with buying a house. Since it involves many major decisions we have to get more realistic about our means.
The debate of buying vs renting a house seems to be very futile. More than being right or wrong it is a matter of choice and affordability.
Owning an asset
The number one argument people have to convince you to buy a home Is that you can own an asset. Although at the surface, it does make sense as house value increases while you don’t get anything from the rent you are paying. However, as you look further into it, you will notice some major flaws in the argument. The main reasons are the extreme costs of real estate in India and our approach to buying a house.
All of us want to buy our dream home with the easy availability of loans. Therefore all of us go ahead and take out loans and squeeze a monthly budget to make sure we are able to pay the EMIs. We go full in for the down payment by taking out all our savings and in case that is not enough, we take help from our parents.
In the end, you have your dream home which is wonderful, however, you are unable to save for other important goals in life like retirement or children’s education. You have taken out all your savings and hence your bank account is negligible. Mixed with the amount of uncertainty of the job market today, all of this can lead to a lot of stress in the future.
Tax benefits from home loans
Another major reason people think buying a house is a smart idea is the tax benefits that come along with procuring home loans. With tax benefits on the principal amount, the interest you pay plus some other benefits, if you are a first-time buyer, it does seem like home loans are a smart way to reduce tax and own your house.
In the initial years of your loan tenure, the interest component takes up the major chunk of your EMI, hence you will not be able to claim the complete Rs 1.5 lakh benefit under Section 80C. Supposedly you are in the 30% tax bracket, the tax saving will be around Rs 60000 on the interest amount paid.
Flexibility of change
Nowadays when mobility is a key to career growth, owning a house may act as a deciding factor whether you will go to a new city or not. In case you do move, looking for a tenant and making sure your house is taken care of is a tough task.
However, living on rent means you have one less thing to worry about. Moreover, you have the flexibility to move houses to a location that is closer to your office in case you change jobs within the city. That time saved and commuting makes a huge difference in the quality of life, especially in the Indian metro cities.
House Rent Allowance
By living on rent you can claim the tax benefits on your house rent allowance or HRA. The amount of HRA is lower of the following:
- HRA is received from an employer
- 50% of basic salary if the taxpayer is living in a metro city
- 40% of basic salary if the taxpayer is living in a non-metro city
- Actual rent paid is less than 10% of the basic monthly salary