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

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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.

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.

The column originally appeared in the Vivek Kaul Diary on May 5, 2016

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About vivekkaul
Vivek Kaul 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. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

One Response to Here is Another Good Joke: New IT Data Shows Only 6 lakh Indians Are Repaying Home Loans

  1. Sonica Agarwal says:

    There’s one aspect you have missed out. Income tax deduction is available only after the house is ready to occupy while home loans can be disbursed for under-construction properties. Not that this will explain the entire difference, but will make up for some.

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