How the EMI Calculator Works
EMI (Equated Monthly Instalment) is a fixed payment you make every month to repay a loan. Each EMI consists of two parts: interest on the outstanding balance and principal repayment. In the early years, most of the EMI goes towards interest; over time, the principal component increases.
The EMI Formula
EMI = P × r × (1 + r)n / [(1 + r)n − 1]
Where:
- P = Loan principal amount
- r = Monthly interest rate = Annual rate / 12
- n = Total number of monthly instalments
Tax Benefits on Home Loans
- Section 80C: Principal repayment up to ₹1.5 lakh (old regime)
- Section 24(b): Interest payment up to ₹2 lakh for self-occupied property (old regime)
- Section 80EEA: Additional ₹1.5 lakh for affordable housing (if applicable)
Frequently Asked Questions
How is EMI calculated?
EMI uses the reducing balance method: EMI = P × r × (1+r)^n / [(1+r)^n - 1]. Each month, interest is calculated on the remaining principal. As you pay down principal, the interest component decreases and the principal component of each EMI increases.
Should I prepay my loan or invest the surplus?
If your loan interest rate is higher than your expected investment returns (after tax), prepay the loan. For example, if your home loan is at 8.5% and your FD gives 7% (effectively ~4.9% after tax), prepaying the loan saves more. For equity investments with 12%+ expected returns, investing may be better — but involves market risk.
What happens when I increase my EMI?
Increasing your EMI reduces the loan tenure significantly and saves a substantial amount on total interest. Even a 10% increase in EMI can reduce a 20-year home loan by 3-4 years.
Fixed vs floating rate — which is better?
Floating rates are usually 1-2% lower than fixed rates and adjust with RBI policy changes. Most home loans in India are floating rate. Fixed rates give certainty but cost more overall. For short tenures (3-5 years), fixed may be preferable for planning.
Can I claim tax benefit on car or personal loan EMI?
No. Tax deductions under Section 80C and 24(b) are only for home loans. Car and personal loan interest and principal payments are not tax-deductible, unless the personal loan is used for home purchase/renovation or business purposes.
