HomebuyersThe reduction in income tax rate will give you a chance to save a part of your income and prepay a part of home loan. This pre-payment will reduce the interest cost and also the overall term of the loan.

As per the new decision of the Finance Minister in the budget, the income tax rate is reduced to 5% from 10% for the slab of 2.5 lakhs-5 lakhs. With this decision, now various professionals will be able to save their money on taxes. Also, as many people have been using the tax saving ways under Section 80C, they will be able to bring down their tax liability to zero. This will ultimately lead to dispose off their extra income.

According to the existing provisions, if an individual’s total income does not cross the limit of 5 lakh per annum, he or she will be provided with a rebate of Rs. 5000 for the income tax payable under section 87A. The amendment in the income tax rate has also proposed to reduce the amount of rebate to Rs.2500, from the existing Rs.5000. Further, only individuals who will have an income of Rs.3.50 lakhs per annum and not more will be able to avail this rebate.

These measures and changes will benefit those with an income of up to 3 lakhs per annum as they will bear no tax liability. Even people with an income between 3-3.50 lakhs per annum will only have to pay Rs. 2500 as their tax liability. Moreover, if individuals with an income of Rs. 4.50 lakhs per annum completely exhaust their exemption of Rs.1.50 lakhs under section 80C, their tax liability will be zero.

The other categories of taxpayers in the later slabs will also benefit from this measure as they will be able to save up to Rs. 12,500 per annum.

These savings can be used tactfully to either pay the EMIs of the loans for reduced burden with reduced income tax or can be used to pay a part of the principal amount of the loan to reduce the overall interest cost.