experts answer your personal finance questions - REAL ESTATEQ. I plan to renovate my house in the next few months. Can I get a loan to do this? If so, are the procedures involved and criteria similar to a home loan? Also, are the interest rates the same and is the tax treatment similar as for home loans? -Jaspreet Bajwa, New Delhi
A. AInterest rates for a home loan is based on the customer's income profile and loan requirement. Normally, the rate of interest on loans for renovation is slightly higher than for a home loan. The other difference is the lower tenure.
Tax deduction is not available on principal repayment, but you can claim deduction under Section 24 for interest payable on a loan taken for 'renewal, repairs or reconstruction' of property. Check with the bank that the definition of the terms is consistent with your expenditure.Q. I own a house and inherited a second property, which has been given on rent. About a year ago, I purchased a third property as investment on loan. Will I get tax rebate on the loan as it is my third investment in property? If I sell the land I inherited and the new apartment to buy a property, will I have to pay capital gains tax? -Manohar Pandit, Varanasi
A. Tax deduction on the principal amount of the loan, under Section 80C, up to a maximum of Rs 1 lakh is available for any number of houses. Further, under Section 24, deduction on interest paid on the loan is up to a maximum of Rs 1.5 lakh if the property is occupied by you, but there is no cap on deduction if the property is not occupied by you. Also, if the property is rented out, you can deduct the interest paid from the rental income. Also, if you own more than one property and none of these are let out, only one is considered to be occupied by you and you will have to pay tax on a deemed rental income from the other properties.
Capital gains from the sale of your inheritance and new apartment will be treated differently. Assuming that the inherited real estate was bought over three years ago, long-term capital gains will be applicable on the sale. If you reinvest this money to buy another property, no tax is payable. Note that indexation benefit is only applicable for the number of years you have owned the property.
On the other had, capital gains from the sale of the new apartment, which is assumed to have been held for less than three years, will be taxable as per your tax slab irrespective of if you reinvest the profit to buy or construct another house.
INVESTINGQ. I want to start a SIP, or Systematic Investment Plan, in an index fund. What are the risks associated with these funds and what are the factors I should consider before I invest? I've heard that it offers diversification. Which ones would be my best options? -Karuna Kathuria, Ambala
A. The key difference between an index fund and other equity diversified funds is management; the latter is run by fund managers and investments are based on the fund's objective while the former changes holding based on index movement. Returns are approximately equal to the index tracked and hence there is market risk. Check costs and tracking error before investing (lower tracking error means better management). You can consider GS Junior Bees, HDFC Index Sensex Plan or Reliance Index Fund.Q. I bought a flat two years back on loan (unpaid principal amount of Rs 11.5 lakh) in Pune. Now, I've received a lucrative offer in Bengaluru with the option of buying another apartment close to my office. But, this apartment is still under construction and will take another year to be completed. Can I sell my apartment in Pune to cover the loan and use the profit to make a down payment on the new house? Will it be hard to get a home loan for the second apartment? What are the tax implications on the sale and purchase? -Santosh Sen, Pune
A. You can consider selling your apartment in Pune to cover the purchase but do a costbenefit analysis before going through with the transaction. If you sell the house in Pune, you will have to pay short-term capital gains tax on it as you are selling the property before holding it for three years. The profit on the property will be taxed as per your slab. But, if you hold on to the property for one more year, it will be considered a long-term investment and capital gained from it will be taxed at 20% with indexation (longterm investment in property offers indexation benefit). So, check which of the two options will leave you with more money in hand, meaning the difference in tax paid added to all transaction costs. Further, getting a loan on a second house depends on many factors including outstanding loan amount, EMI on existing loan, current salary, credit score and so on.Q. I changed jobs in 2012. Due to some procedural delays, I will be given my provident fund savings in July 2013. It would amount to about Rs 45,000. I want to invest this money. It would be my first investment of any kind. I am 27 years old and have no dependants or any debt. What should I do with the sum? -Aadil Khan, e-mail
A. Provident funds are usually considered retirement savings. However, since your profile (no liability, young) allows you to take considerable risk, you can invest it. Systematic investment in equity diversified mutual funds is a good option. Keep some money in a debt fund and transfer cash into an equity fund periodically. You can try one or two large-cap funds, such as ICICI Pru Focused Blue Chip or Birla Sunlife Frontline Equity Fund, and one or two mid- and small-cap funds, such as IDFC Premier Equity, SBI Emerging Business or ICICI Pru Discovery.Q. My parents have been investing in postal recurring deposits. I would like to know the rules for premature closure. What rate of interest is applicable? Does the amendment of 2011 have references to premature closure? -Priambroto Ghosh, Kolkata
A. Premature closure is permitted in a postal recurring deposit on completion of three years from the date of opening the deposit account. Interest is to be calculated as per the rules and rates applicable to individual savings accounts. Also, Post Office Recurring Deposit (Amendment) Rules, 2011, does not mention premature closure explicitly.
INSURANCEQ. I have a family floater plan, which also covers my 56-year-old mother. I wanted to know how companies increase premium if senior citizens are included in the cover. When can insurers increase premium? Is there a maximum age for renewal in a family floater policy? -Soham Kumar, Patna
A. Most insurance companies increase premium rates after a firm's portfolio review. Some companies do this every year, while others do a review after a certain number of years. This is at the company level and not related to your specific plan.
Some policies also have a clause that allows insurers to increase premiums on a policy based on the claims made in a year.
Each company has a different maximum age for renewal, but many insurers also offer lifelong cover. It is recommended that you review your current policy documents to get this information.
According to recent guidelines from Irda, the Insurance Regulatory and Development Authority, it is expected that an age limit for policy renewal will be removed soon. Check with your insurer to keep informed of this.Q. I wish to take a family floater health insurance policy of at least Rs 5 lakh. However, my son was diagnosed with bipolar disorder a year ago. I wanted to know if patients with mental disorders can get a health policy? -MK Sharma, Meerut
A. Unfortunately, most health insurance firms do not have policies for people with mental disorders. However, try contacting your current insurer to determine if your son's condition can be included, possibly with a higher premium.Q. I recently moved to New Zealand, where my employer provides adequate medical coverage. I have a family floater plan in India that also covers my parents. Can I remove my name from the plan and let my parents continue the policy? I'm the policy proposer. -Shrishti Joshi, e-mail
A. You can replace your name with either of your parents as the proposer. The benefits offered in the current policy will continue, but the premium may change due to the new proposer's age. Check with your insurer on the exact procedure and change in premium.Q. I work in New A Delhi while my family lives in Patna. I know of insurers selling locationbased health plans, wherein you pay premium commensurate with the cost of treatment in your city. Can I buy a family floater plan in my home town though I live in New Delhi? -Deepanjan Sarkar, Delhi
A. Many insurers are offering plans that allow those residing in tier II and tier III cities to get a health plan that costs less compared with a similar plan in a tier I city, owing to the difference in costs of health care. Though these policies do offer this advantage, if you get treatment in a city not in the same category, a 'co-pay' clause is applicable. So, if you seek treatment in Delhi a 'co-pay' charge is applied on the claim amount. When buying a health policy, don't choose a policy if it does not offer the best coverage.
TAXATIONQ. My brother is a Canadian citizen. He wants to sell his house in India and will be transferring this amount to Canada to buy a house there. What documents are required to compute long-term capital gains on the property? Is he required to pay tax in India or Canada as India has a double taxation agreement with Canada and what percentage? Also, I have read of tribunal judgements allowing reinvestment of money abroad to get tax deduction in India. Is this possible? -Gitika Kapur, Amritsar
A. The documents required are the purchase agreement, sales agreement and bills for any capital expense incurred, such as construction or commission, on the property. Capital gains is calculated by deducting cost of acquisition (indexed cost of purchase plus construction and additions, if any) from selling price. Income tax on the capital gain, at 20%, is payable on sale of the property. However, if he buys a house within two years or constructs one within three years using this capital gained in India or abroad, there will be no tax payable in India.
Anil Rego, CEO, Right Horizons, has tackled financial planning; Antony Jacob, Chief Executive Officer, Apollo Munich Health Insurance, has answered insurance queries; Harsh Roongta, CEO, Apnapaisa.com, has replied to home financing queries; and Sudhir Kaushik, Co-founder and CFO, Taxspanner.com, has provided tax solutions.