To buy or rent

Whether to buy or rent a house is a crucial decision to be taken. Owning a home is one of the most important decisions for an individual. The financial and personal considerations need to be kept in mind. Renting a house is acceptable for the sake of convenience and financial constraints.

Both purchase as well as renting a property needs to be evaluated based on financial and tax considerations. There are a few tax benefits available for rent payouts for salaried employees by way of HRA deductions and for self-employed professionals under Section 80GG.

Investment in a residential property is an important economic decision that should be taken based on hard facts such as cost of capital, effective rate of interest, forecasted capital appreciation of property values and the prevailing market rental rates.

The advantages of buying a house include:

• One has freedom to make alterations or changes as he likes.
  
• There is no dependence or interference.
  
• No monthly outflows of rent or increase in rent.
  
• Income tax benefits on interest and capital repayment of loan taken for construction or repair of property.
  
• One can use it as a security for taking loans.
  
• Can rent out whole or part of house and earn rental income.
  
• Capital appreciation.

The rate of interest on housing loans is low. In many cases, the amount of money that a person spends on rent may be almost same as or a little less than the amount that he pays as installment of a home loan. Considering the tax benefits, the saving can be significant. The post tax cost difference between owning a home through a loan and renting a home is reducing. Tax sops are provided to persons repaying housing loans under Section 24 of the Income Tax Act. Under Section 24, one is allowed to deduct an amount equivalent to the total interest payable income within the same financial year. The principal repayments are also eligible for tax deductions. One may evaluate the options of purchase and renting a house, and take a decision accordingly from a financial perspective. The tax saving on a housing loan, EMI payments and the rental payments need to be considered.