I have taken home loan from Union Bank. My query is: Is it mandatory to take property insurance for home loan as the bank is insisting on property insurance and saying as per RBI rules.
It is not mandatory for you to buy insurance for availing a loan. In fact RBI has specifically provided that buying insurance from the company for which the lender is an agent cannot be compulsorily linked to provision of loan. However the banks are free to insist that you take an insurance policy to safeguard their interest as long as it is not compulsorily linked to buying the insurance policy through them. Most banks will insist for taking a term insurance for housing loan as the tenure is normally long term and banks would like to insure themselves against the risk of the borrower dying during the loan tenure. But If the bank insists for buying insurance you can always buy insurance from any other insurance company and assign the same to the lender.
It is in the interest of your dependents (and yourself) that you take a term insurance plan and a critical illness and accidental disability plan so as to cover the amount outstanding on your loan account to at least co terminate with the tenure of your loan. This will ensure that you/your dependents are not burdened with the home loan should anything untoward happen to you. You will need to assign the policy to the lender. If your lender is not agreeing to take the policy from another insurer, there are plenty of other lenders in the market who will agree to accept insurance policy from other insurance company. There are various online term insurance plans available in the market now which are much cheaper compared to the offline options. You can buy these plans online over the internet.
Please clear my doubts on following points–
1) Is interest paid against 2 nd home loan is also exempted for income tax?
2)I want to utilize long term capital gain for buying a 2nd home.As I understand to avoid tax
- this amount need to be invested in capital gain bonds within 6 months of transaction with a lock -in period of 3 years.
- I need to open a capital gain account in a bank before 31st March and need to utilize the amount within 2/3 years.
Suppose I am not able to buy any home within this period than what is the tax liability for a sum of rs say 30 lakhs vis-a-vis inerest earned on this account?
Is there any other way where I can easily use the money for buying a home within 3 years and at the same time my tax liability remains minimum if I am not able
to invest it within specified period?
1) In case a person owns more than one property and both are either occupied by himself or his relatives, the person has to treat one of the properties as self occupied.. Once the option to treat a particular property as self occupied is taken the other property will be deemed to have been let out and a notional income equivalent to the rent expected to be realized on such property will be treated as rental income in respect of the other property.
The annual value of the self-occupied property is taken at nil and a person is entitled to claim interest payment for loan taken to acquire that property unto a limit of Rs. 2,00,000/-. He can also claim income tax benefit towards repayment of principal portion of housing loan within overall limit of Rs.150, 000 under Section 80 C.
The taxable income of the second property will be arrived at by deducting actual interest payable in respect of such property without any limit from the notional rent taken above plus 30% standard deduction
You have to exercise the option of which one of the two properties to be treated as self occupied for the purpose of Income Tax every year. It is advisable to treat the house with interest outgo more than 2 lacs as let out as as full interest on home loan is deductible in such cases. However if one of the house is actually let out you do not have the option of treating one house as self occupied house and the house actually occupied by will be treated as such for income tax purpose.
2) It was not clear where the long term capital gain is coming from. I presume it is from the sale of another flat which you had held for more than 36 months so the capital gains on sale of this property shall be treated as long-term capital gains.
Income from sale of residential property is liable to capital gains tax after deducting the indexed cost of acquisition. In simple terms, indexation is a way of arriving at the present value of a purchase made in the past.
You have 2 options to avail the tax exemption. In the first option, if you plan to buy property in the future with the sale proceeds, you can keep this money in a bank account under the capital gains account scheme (CGAS) before the due date of filing of the income tax return (31st July of the next financial year for salaried tax payers) There would be no tax on the capital gains if this money is used to either purchase a residential property within two years or construct a property within three years from the date of the sale of the property.
Alternatively, you can invest the sale proceeds in bonds of the National Highway Authority of India or the Rural Electrification Corporation for a period of three years within 6 months from the date of sale of the house property. On maturity, the whole of the sale proceeds will be fully exempt from tax except that you will have to pay tax on interest received on such bonds.
3) If you do not want to invest and use this money, you will have to pay tax @ 20.60% on the indexed long term capital gains so calculated in the year in which the period of 2 or 3 years lapses.