POSTED BY September 22, 2012 4:20 pm COMMENTS (11)

ONHi,

I have a SBI Max Gain home loan account, Outstanding is nearly 16 Lakhs (Interest rate ~10% and paying an EMI of 30k per month). I have nearly 4 Lakhs cash reserves (3 lakhs in FD + 1 Lakh in different savings accounts).

Could you please advicee me if I should transfer all my balances as much as possible to the Max Gain account (even considering breakind FD’s giving a return of 9.25%). Will it be beneficial.

Thanks in advance.

Thanks,

Sandeep Saini

Another point is the interest rates are expected to reduce. If i keep fund in MG and rate goes down, the fund will attaract less interest. and if i book FD rate now 9% . What can be the scenario for 3-5 years duration.

HI, I was just going through this thread. Interesting one. Now i would like to add another factor in this equation. Support this is my 2nd home and i keep 15L in MG account on a 30L loan. For 2nd home, 100% interest-income from rent will be deducted from taxable income as it would be loss from property and i will save 30% tax as well. Here less interest and less IT rebate. Now with this should i park my fund in MG or in FD. (Option remains about FD on own name or in senior citizen )

Hi Ashal,

One more clarification 🙂

In case of MG acct, Is the principal calculated as daily balance or minimum during the month.

Thanks,

Sandeep

Hi Ashal,

Thanks so much for your kind advice.

One final question 🙂

As per you final comments, Though I really doubt but let me ask you, Do I earn any interest on the amount parked in MG acct apart from not being not charged any interest on it.

Thanks once again.

Thanks,

Sandeep

Hi Ashal,

First of all Thanks to you for your time and replying promptly but hope it will clear things for many other people too.

I completely agree with your point regarding malpractices but I was just trying to make a point in case it does.

That’s what is confusing me, I always thought that putting it in MG acct will benefit but when I tried to satisfy myself before deciding with numbers, I didn’t got much. Also, Its really cryptic how our EMI have Principal and Interest components though same across banks and how it varies over time.

Thanks,

Sandeep

Dear Sandeep, I can not comment for others but I do know for myself as well for my friends, it helps to use legally right ways to adopt tax savings & investment practices. Over the time, it creates a lot of wealth & above all the peace of mind that whatever money I do have today is not from illegal source or Tax evaded.

For your given case – if you are putting your money in MG instead of FDs, you are earning 10.25% ROI indirectly. As the money is there in MG, you w’d not pay interested on the parked amount. As you are not paying interest, it’s indirectly interest earned by you.

There is more to it, due to this parked surplus, the less interest ‘ll be deducted in each passing month & due to excess interest, the surplus ‘ll keep on increasing & thus ‘ll again help you to bring down your interest outgo.

Thanks

Ashal

Hi Ashal,

Thanks, I understand that but I can get the fd’s on my spouse or mother’s name and since both of them are not working, for her it will be exempted from tax mostly.

One more question, Does interest on fd’s always have some fixed tax (min) or it just adds up to your total income in respective year and in case you don’t have any income then unless it (interest earned per year) crosses Standard deduction, you are not liable to pay any tax.

Please if you may confirm if my above understanding is true or not.

Also if my comparative calculation done before is correct or not.

Thanks,

Sandeep

Dear Sandeep, investing your money in name of your home maker wife or mother is called tax evasion & not tax saving. We do not promote such practices.

By the way, if your home loan rate is 10.25% & you are earning 9% on FD, are you earning really any income from your FDs?

Regarding that taxation of FD, is the interest of all your bank accounts in a single branch crosses the limit of 10K in a FY, the TDS is applicable on full amount @ 10% rate if PAN is provided & 20% for non PAN cases.

Yes if a person does not have taxable income from all other sources, the Form 15G (15H in case of Sr. Citizen) can be filed with the bank to avoid TDS.

Thanks

Ashal

Dear Sandeep, who ‘ll pay income tax on the interest earned on FDs?

Thanks

Ashal

Hi Ashal,

Thanks for your response. Just did some calculations as below, Please if you may check if they hold good or if I am missing anything.

Condition A: Dont put anything in MG acct

Prinicipal: 16 Lakhs

EMI: 30k, Tenure ~6 Years, ROI: ~10%

Total Interest Paid at the end of 6 Years: 5,25,000

Possible Interest Earned on 4 Lakhs @9% annualized yearly at the end of 6 Years: 2,70,840

Condition B: Put additional 4 Lakhs in MG acct but EMI remain unchanged hence reduce tenure

Prinicipal: 12 Lakhs

EMI: 30k, Tenure reduced to ~4.1 Years, ROI: ~10%

Total Interest Paid at the end of 4 Years: 2,70,000

Possible Loss of Interest (on 4 lakhs @9% annualized yearly at the end of 4 Years): 1,65,000

Condition C: Put additional 4 Lakhs in MG acct but keep tenure unchanged hence reduce EMI

Prinicipal: 12 Lakhs

EMI: 22.2k, Tenure kept at 6 Years, ROI: ~10%

Total Interest Paid at the end of 6 Years: ~4,00,000

Possible Loss of Interest (on 4 lakhs for 6 Years): 2,70,840

Saving EMI : 7800*72 = 561600 (say put in RD for 6 Years @8-9%-> 7,00,000), So interest earned = ~1,40,000

So Total Cost of Loan

Condition A = 5,25,000 – 2,70,840 = Rs 2,54,160

Condition B = 2,70,000 + 1,65,000 = Rs 4,35,000

Condition C = 4,00,000 + 2,70,840 – 1,40,000= Rs 5,30,840

Also I am not considering the loss of IT benefit in case I close the loan earlier or not utilizing the full bucket of 1.5 Lakh prevalent limit in most years.

Please suggest and forgive me if I am doing the calculations wrong and missing something critical 🙂

Thanks so much.

Sandeep

Dear Sandip, yes is the answer. To get the maximum benefit of Max Gain account, please park your FD & other cash in MG acct. Please make sure that you have the withdraw facility for acct. So that in case of need you may liquidate your money from MG acct.

Thanks

Ashal