Nightmares of Home Loan - Who is responsible?

The global recession was succesful in checking the unstoppable and unbearable growth of many sectors of the economy. There are many people who blame the recession for the affect it had on them. I wonder how many of them realize that they were also part of the 'responsible group' for recession. Though the government is taking many steps to improve the situation people are skeptic to spend-for their fear of insecurity of their jobs. And no need to blame them as they are being intimidated by the number of job cuts around them. In a worse sutuation than this are people with liabilities who would be desperately praying for their pay and security of their job.

What are the liabilities that position them in such a worse condition? I would say only one - The Home Loan. This is the major liability for most who lost their job or even at the verge of it. It is a liability of huge amount per month and which extends for years-probably till you retire. The nightmares of Home Loan is because of its humongous nature. I wonder why do people go for such things without proper backup of assets. When you think about it you realize the sad truth that most of the employees are forced to take it.

Who is forcing them? I would say the Government. The government of India provides for tax benefits of Rs 1.5 lakh (150,000) per annum on the interest paid for home loan (section 24), and Rs 1 lakh (100,000) per annum on the principal amount paid for home loan (section 80C). But the tax benefit for all kinds of savings (ELSS, ULIP, Insurance, etc + the PF) cannot exceed Rs 1 lakh (100,000) under section 80C. The intention here is to provide incentive to the citizens to fulfil the basic need of having a house. But this is backfiring and leaving many people with the burden of carrying the overwhelming home loan for their entire valuable life.

Many employees consider home loan as a tax saving tool with less foresight of looking at it as a liability and burden. For many people employment is the only asset to backup the loan which makes them vulnerable to the recession kind of situations. Another sideeffect of this is the ever rising real estate prices. The prices are increasing due to unworthy competition which is not good for anybody - everyone is helping to dig a big hole where they will get burried once. There are very less people who try to own a home at the right time - after marriage with the spouce earning or after saving some money - and not get trapped in bad situtations.

Still how is the government responsible for it? It could have taken effective measures to control the real estate prices but that is all too unimaginable in a diverse country like India. More simple solution is to increase the amount an employee can save as investment - ELSS, ULIP, Fixed Deposit, or even introducing new and better schemes. Other possible soulutions are to increase the number of tax slabs (lilke 10%,15%,25%,etc), or increase the income range with in a tax slab (current slabs are - upto 1.5 lakh - 0%, 1.5 to 3 lakh - 10%, 3 to 5 lakh - 20%, >5 lakh - 30%).

Considering the increasing salaries of many private and public sector employees these steps, in the near future, would be inevitable. By introducing these measure the government would give the people the option to gain assets inplace of the liabilities option available now. And this can be done with out affecting the revenue that the government gets from the tax paid by the employees. Coming back to the present, young employees must be intelligent enough in chosing the right time to take big loans.