Thursday, March 05, 2009

The Secrets of Housing Loans and Taxation

Ever wondered how much a housing loan would really help you get your OWN house, AND save you tax? Well I've been looking for answers on this topic from many years ago, but was only able to fully figure out everything once I got my own housing loan and tax file some years ago.. All this time I have been secretly giving out information to my friends on this, and today I am going to make it publicly available..

First for some history on this topic, I wrote a tiny Java Script EMI calculator few years back, and its still available on my GeoCities website, which I haven't updated for quite sometime :)

I've also blogged about "How to Get a Loan in 3 days" previously, and would recommend reading it for anyone who is considering this in Sri Lanka

So now for the goodies..
The worksheet has been made available in M Excel format - to support those who still pays Microsoft for software provided free by many others, and is much better most of the times.. It allows you to first key in your EMI details - i.e. how much you want to borrow, how much interest the financial institution is asking for, and the duration of the loan, and then you can calculate your monthly EMI (Equated Monthly Installment)

Search Google for more information on what EMI is and means - its a very fair scheme, where you pay interest for what you really get in a loan. Each month you pay the same amount, but during the start of the repayment, most of this money is counted as interest, and a little as capital repayment, and towards the end of the loan, most will be counted as capital repayment, and less as interest. Thus if you take an EMI loan for 20 years, and pay it for 3 years and want to exit, you still would have to pay back a large sum of the amount you've borrowed - but hey - its a FAIR calculation.. a bank is not your relative, to give you free money!

Next, enter your salary details, and see how much you will save as Tax. BUT this comes at a price.. you will need to open a Tax File and ask for a salary direction to your employer, so that PAYE tax will not be deducted from you each month.

A Tax file is like a Driving License in Sri Lanka, they never expires :).. so thereafter, each year you WILL have to send your tax information to the Inland Revenue Department. These people sometimes even ask people who has died to keep filing tax as well, probably to cover up the massive VAT fraud the officials of this department helped themselevs into. But then again, officials in Sri Lanka rarely resign, even AFTER they are found guily by the supreme court!.. but we know of one who had to bite the dust finally!

So finally .. here is the goodie I promised.
http://people.apache.org/~asankha/personal/Salaries_and_Tax_DEMO.xls

Please let me know if you have any corrections, or suggestions for improvement.. and feel free to share it with others, but please do respect the copyright notice and the name of the original author.

4 comments:

creed - Uchitha said...

Useful post Asankha. But you might want to correct the fact about the person who apparently did NOT bite the dust 'finally'

Asankha said...

Thanks Uchitha. In this instance I prefer to simply state "What I have written, I have written"..

There is a universal system of justice to which every man is accountable upon his demise from this world, and that will be the 'final' verdict :)

kit said...

Hi Asankha,

I might be a late reader of this, but I jumped into your article when I was searching for Housing Loans + PAYE. :)

I heard that this scheme is no longer available since it was invalidated from year 2013 budget. Is there any other way we can reimburse the PAYE tax from the housing loan scheme? If so, pls share.

Thanks in advance!

Asankha Perera said...

As far as I know, PAYE tax is a final tax now.. so I do not think there is any possibility of claiming any benefit - unless you can prevent the tax being charged first with a Tax direction. Best is to consult a tax professional who know these aspects.. good luck!