AS yet another International Women's Day approaches, the growing tribe of financially independent young women in India have plenty of reasons to cheer. A number of women in their 20s and 30s - particularly in urban areas - have made steady progress in the professional arena, especially in financial services and IT sectors. Thanks to attractive remuneration, they are likely to be left with substantial investible surpluses, which need to be directed to the right avenues, so that their hard-earned money works harder to help them achieve their goals.

HOUSE VS ELSS

Prima facie, the decision to buy a house seems like a no-brainer. After all, it is a highly valuable tangible asset that sees constant appreciation most of the times, besides of course, fulfiling the most basic need of mankind - shelter. "It's always better to own a property as it is a huge source of security and can come in handy in case of any eventuality. Even from a tax-saving perspective, taking a home loan seems an attractive option," says financial planner Zankhana Shah, head of MoneyCare Financial Planning.

For instance, if you invest in an equity-linked savings scheme (ELSS), you could claim deductions of up to Rs 1 lakh under section 80C. On the other hand, a housing loan will enable you to avail of tax benefits on principal repayment (up to Rs 1 lakh) under section 80C as well as up to Rs 1,50,000 under section 24 on interest paid on the loan (While the Direct Tax Code has proposed certain changes in the structure from April 2011, it is yet to be finalised). If you have purchased the house jointly with your parents (and assuming you live there), you can claim deductions on your share of home loan. Consider another scenario where a woman is staying with her parents (in a house owned by them) and leases out the house she has purchased. In such a scenario, in addition to deductions on re-payment of home loan principal up to Rs 1 lakh, she can claim the entire interest paid as deduction against the rental income. If the interest paid during the year is Rs 5 lakh and the rent earned is Rs 2 lakh, the interest amount can be claimed as deduction against Rs 1,40,000 (actual rent - 30% for repairs and maintenance. Note: Municipal taxes have not been included in this calculation). This will mean a loss of Rs 3,60,000, which can be set off against your salary income, thus maximising your tax gains.

OTHER FACTORS

However, several other factors need to be borne in mind before deciding to invest the surplus in real estate. "At this age, there is a tendency to invest in a house on the basis of affordability, ie, if they can afford a single-bedroom apartment, they are inclined to opt for the same, without realising that they might need a two-bedroom flat a few years down the line," explains Anil Rego, CEO of financial planning firm Right Horizons. Also, ascertain whether you would be comfortable lockingin the money in a relatively illiquid asset, as you could be faced with expenses on marriage, holiday, and any emergencies in the short term.

MARRIAGE ON YOUR MIND?

This apart, if you are planning to get married in the near future, remember that you and your husband could maximise tax benefits on a home loan if you jointly own the house, besides lowering the repayment burden. The ideal approach to adopt, therefore, is to determine if your surplus is capable of funding the down payment for a house that you would like to own in the long-term. Else, you could bank on other avenues - especially equities since young investors typically have a higher risk appetite - to create a corpus for the down payment over a period of time.

IT'S A FAIR DEAL

Scenario 1

Buying a house that fits into your current budget

Recommendation: Not advisable, as you are likely to need a bigger house, superior amenities or a better location in the future. Instead, you could direct your investible surplus into equity-related and tax-saving instruments to create a corpus for down payment.

Scenario 2

Buying a house jointly with your husband

The decision on owning a house jointly with your husband depends entirely on your comfort level. Financially, though, it makes sense as both can claim tax benefits on the home loan under section 80C and 24.

Scenario 3

Buying a house that is capable of fulfiling your needs in the long term Recommendation: Go for the house only if your surplus can adequately take care of any short-term expenses and yet fund the house.

Ref : The Economic Times