Here is Another Good Joke: New IT Data Shows Only 6 lakh Indians Are Repaying Home Loans - Vivek Kaul's Diary
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Here is Another Good Joke: New IT Data Shows Only 6 lakh Indians Are Repaying Home Loans

May 5, 2016

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In yesterday's column I explained that if official data is to be believed India has only 20 lakh individuals who earn an income out of house property.

To put it simply, as per official data, India has only 20 lakh landlords or 19.95 lakh to be very precise. This number can be inferred from the data for the assessment year 2012-2013 shared by the income tax department last week. Income tax returns for the income earned during 2011-2012 would have to be filed during assessment year 2012-2013.

In fact, there was another interesting data point, in the column. This means some amount of repetition from yesterday's column, but kindly bear with me. I am repeating this point because of two reasons-a) I thought, it sort of got lost in yesterday's column. b) I think it is an equally important point which people need to know about.

As per the data for the assessment year 2012-2013, there were only around 26.01 lakh individual assesses who had shown some income from house property. Of this, around 6.06 lakh (or 6,06,046 to be very precise) had shown a negative income.

This negative income amounted to around Rs 3,298 crore in total. This works out to an average negative income of Rs 54,418 per individual. The term negative income is actually an oxymoron. But what it essentially means is that instead of earning any money from a house, the owner is actually spending money on it.


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This happens when someone has taken a home loan to buy a home and is paying an interest on it. The Income Tax Act allows the interest paid on borrowed capital (i.e. a home loan) to be deducted while calculating taxable income.

For 2011-2012, in case of a self-occupied home, a maximum amount of Rs 1.5 lakh could be taken as a deduction for the interest paid on a home loan. Individuals in such situation would end up having a negative income from house property.

For a non-self-occupied home, there was no upper limit to the amount of interest that could be taken as a deduction, though a notional rent would also have to be taken into account, if the house hadn't been put out on rent.

If the interest to be paid on the home loan was greater than the rent earned or the notional rent, then the income from house property would turn out to be negative. Such individuals would also end up having a negative income from house property.

The surprising thing is that the number of such individuals in total is only a little over six lakh. Does this mean that India has only six lakh people who have taken on a home loan to buy a home? The official data seems to suggest that.

But this is simply bizarre. Some simple mathematics clearly shows us that. The Reserve Bank of India (RBI) puts out sectoral deployment of credit data. During 2011-2012, scheduled commercial banks gave out home loans worth Rs 41,907 crore.

Multiple newsreports point out that in 2012-2013, the average home loan financed by banks was Rs 10 lakh. I couldn't find an average home loan number for 2011-2012, and hence will have to work with this.

Let's assume that in 2011-2012, the average home loan financed was 10% lower at Rs 9 lakh than in comparison to 2012-2013. This essentially means that just in 2011-2012, around 4.66 lakh homes (Rs 41,907 crore divided by Rs 9 lakh) were financed by scheduled commercial banks.

Over and above banks, housing finance companies also give out home loans. Hence, it is safe to say that just in 2011-2012, more than six lakh home loans would have been given out.

Further, home loans would have also been given out even in years before 2011-2012. Hence, how is it possible that only around six lakh individuals have a negative income from their homes, as data from the income tax department suggests?

Something doesn't really add up here. In fact, as I had pointed out in yesterday's column, the number of home loan accounts with scheduled commercial banks in 2011 had stood at 47.32 lakhs.

Hence, the data from the Reserve Bank of India is completely at odds with the data from the Income Tax department.

Typically, when people do not declare details to the Income Tax department the idea is to hide income and save on tax. But in this case nothing of that sort is happening. If an individual does not declare in his income tax return that he is repaying a home loan, then he does not get the interest paid on the home loan as a deduction.

One explanation for this might be that many salaried individuals are declaring their home loan details to their employers, getting a deduction, and then not filing their income tax returns.

But that can at best be a very small explanation because the difference between six lakh people declaring a negative income from their house and 47.32 lakh home loan accounts with banks, is huge. And if we consider home loan accounts with housing finance companies, the number is even bigger. Also, the same logic will not work for the self-employed individuals.

So what is a possible explanation for this? One explanation that I can possibly think of is that the home loan has been taken on only as a bridge loan. This essentially means that people have used black money to pay a substantial part of the price of the home and have financed the remaining through taking on a home loan. This logic applies more to the self-employed individuals rather than the salaried class.

By not declaring the fact that they are paying an interest on their home loan, the hope is not to attract attention on their rather expensive home in comparison to the home loan amount that has been borrowed. But then in this day and age of big data, it shouldn't be so difficult for the Income Tax department to figure out, who has taken a home loan and is not declaring it.

I don't know if this explanation is correct, but this is something I can think of at this point of time.

To conclude, the Income Tax department needs to look at this anomaly in greater detail. The answers will be very interesting.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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7 Responses to "Here is Another Good Joke: New IT Data Shows Only 6 lakh Indians Are Repaying Home Loans"

Karthik

May 6, 2016

Vivek,

Am I missing something. Your mail says the number of home loan accounts with scheduled commercial banks in year 2011 has stood at 47.32 Lakhs (Don't understand your basis of arriving this figure).

You are also saying that in year 2011 - 2012 around 4.66 lakhs homes were financed by scheduled commercial banks based on their loan outlay.

Which figure is right? 4.66 lakhs or 47.32 Lakhs?

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Anuj Grover

May 6, 2016

Dear Vivek,

I think that you have over-simplified the calculation.

There would be many who have taken a home loan but haven't yet got possession. So, they can't claim negative income. This could be a 'huge'majority since it was the time when bookings were being done, without delivery of flats...

Many would also be getting rental and therefore no negative income.

And yes, there would be many who might be avoiding getting their flat into the eyes of the income tax department, but I think numerous cases would lie in the first two categories too...

best regards

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RAGHUNATHAN VARADARAJAN

May 5, 2016

Fantastic observation and analysis. I hope I Tax department looks at these figures seriously and start an investigation.

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Dr, K. S. Ananda Kumar

May 5, 2016

I regret very much to understand the disparity. This is mainly due to NRIs, who are residing abroad, and who don't get sufficient income on the house property. They go on submitting returns for the actual rent that is received and show it as negative income or even loss. To be precise, my daughter has spent nearly Rs.1 crore for construction of one house at Hyd, and she gets not more than Rs. 2.4 lakhs per annum rental income. She has to pay home-loan principal and interest. They take their own time to clear it. In some instances, I understand that where a husband is a NRI, and where the house is constructed in the name of his wife, the house does not earn even the interest paid to the bank. In all such and similar instances, it is always a negative income. This happens even they are Indian citizens working in distant places, and a house was constructed in some other city. Of course, there is no black money involved and no wrong data in the submission of their I. T. returns. Now that the residential complex apts are priced Rs.2 to 5 crores, it is difficult to expect that there is any income from these properties. The tenants will not pay more than Rs.30000 or Rs.40000 rent per month. They want the house property to be used when they settle down in India or give them for their offspring. There is no irregularity involved at all. Mr. Vivek Kaul knows better than me.

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Mohan Ketkar

May 5, 2016

Dear Mr. Vivek,

You missed a critical and important data point here. There are various people who are earning less than the income tax exemption limit of Rs. 2.50 lacs. These people have taken home loans and are paying interest and principal on time. However these people are not required to income tax returns. Hence even if they own a house and have taken loans, they are not required to reveal these details to Income Tax Department.

Hope this is a valid explanation.

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Vipul Jasani

May 5, 2016

Dear Vivek,

I am surpirsed with this series of articles as you did not agree to my comment on higher income people buys property to save tax and build so called asset "Real Estate".

In that mail, I mentioned that the reasons for speculation in property prices are

1. Black Money
2. Wrong Income tax benefits to home buyers specifically not buying for self-occupied.

Our Income tax policies are made in such a way that low income people can never buy home!!!!

Another problem with our economic policies is that they identify "Real Estate" as one of the major industry for so called GDP growth!!!

Thanks

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T.M,.RAMANI

May 5, 2016

SURE THE OTHERS ARE NOT REPAYING THE HOUSING LOANS IN THE FOOTSTEPS OF MALLYA.

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