Topping-up on your home loan? There's a catch

If you are a home loan customer, top-up loans are for you in case you have additional requirement of loan for extension, renovation, modification, painting or even for additional features like buying a parking lot.

So all you home loan customers, you can get this topping in the form of incremental loans on top of your home loans known as top-up loans.

The top-up loans have some simple conditions to fulfill. As you pay your home loan, your loan outstanding (what you owe to the your lender) decreases, which makes you eligible for these top-up loans. Lenders find it easier to grant these loans as there is very little documentation requirement. Moreover you are adding up more loans into your home loans.

But every lender has a criteria to consider to grant you these loans like you should have serviced (begun repayment) the home loan for a particular period of time. For some lenders it is not compulsory, they exercise their own discretion. It goes without saying that you should have an excellent repayment record.

So how do lenders decide on the amount?

It is dependent on the following factors:

• Your loan outstanding (the amount your need to repay to the lender)
• Your property value (current market value of your property)
• Your repayment capacity (earning and savings)

Another advantage is that you can use this amount even for meeting other financial emergencies as these can be treated as personal loans, where interest rate is better than personal loan.

But you cannot use such loans for speculative purposes. Ideally you should utilise them for modifying, renovating or acquiring add-ons to your existing home as only then you can claim the tax benefits for the top-up loans.

Like if you have utilised the amount for buying the parking space or painting the house then you will be entitled for tax benefit but if you have utilised the funds for buying furniture, fixtures or furnishings then tax benefit will not be available.

These deduction are same as home loan deductions of Rs 100,000 for principal repayment and Rs 150,000 for the interest payment.

What's the catch, then?

Many private sector and PSU banks offer the top-up loans. However, the home loan outstanding and the top-up together cannot exceed 70 per cent of the market value of your property. Added to this, there is a maximum cap, which differs from lender to lender.

But not all is that hunky dory, there are few catches involved which you should know about.

Lenders have certain in-built conditions like that in the first year of availing the top-up, any prepayments made towards your home loan (partial or full) will be adjusted towards only your top-up loan. This way your housing loan stays put for that year.

Another factor to consider is while you may end up getting a substantial amount at a great rate with minimum documentation, you will be able to repay the loan for the same tenure as your home loan.

So till now you were thinking that these are unsecured loans at great rates but remember you lender already has the security, that is in the form of your house.

Most importantly do not forget that you are raising another debt against your home, so you should evaluate all the pros and cons before going for these.

5 things to do to avoid the tax blues ... !!

It's a typical day in March when you see people running helter skelter to invest to save on taxes. And more often than not, they end up investing in products that are either not right for them or not worth investing at all.
You can, however, start saving on your personal income tax during the year, and make additional strategic moves as the year-end approaches. Here are some basic tips for saving on your taxes:

1. Invest and claim your deductions


Section 80C: There are various sections which offer you tax breaks, the most popular one being this one as you can claim up to Rs 1 lakh under this section and it offers you a wide variety of investment options. The options include Employee Provident Fund (EPF), Public Provident Fund (PPF) up to Rs 70,000 per annum, National Savings Certificate (NSC), 5-year bank fixed deposits, life insurance policies, equity-linked savings schemes (ELSS), unit linked insurance plans (ULIPs), school fees, and home loan principal repayment.
Section 80D: If you have taken a medical insurance plan for yourself, your spouse, dependant parents and dependant children, you can claim deduction up to Rs 15,000 (Rs 15,000 additionally for your parents' medical insurance is also available) under Section 80D for the premiums paid. The limit now has been enhanced to Rs 20,000 for senior citizens on the condition that the premium is paid via cheque.
Section 80DD: Expenses on the medical treatment of a dependent who is a person with a disability also qualifies for tax benefits under Section 80DD.
In this case, deductions up to Rs 50,000 can be claimed.
A life insurance policy bought for the benefit of such a handicapped person is also eligible for this benefit up to Rs 50,000. In case the disability is severe, the claim can go up to Rs 75,000. However, to claim any deduction under this section, certification by a medical authority is mandatory.

2. Interest component of your home loan

The interest component of your home loan is allowed as a deduction under the head 'income from house property' under Section 24(b) up to a limit of Rs 1.5 lakh a year in case of self-occupied house.
One condition being that your house must have been financed by a housing loan taken after April 1, 1999.
It is also essential that the acquisition or the construction of the property is completed within three years from the end of the financial year in which the loan is taken.
The claim can be made even on loans taken for repair, renewal or reconstruction of an existing property.

3. Take a loss

If you've done well with your investments and are looking at significant short term capital gains, prior to year-end is the time to offset some of those short term gains by selling some of the losing investments.
If the stock is good, you could sell it on 31st March, say on March 31, 2010, and buy it back in the next financial year, say April 1, 2010; here of course there is the risk of price fluctuation.
Remember that you can carry forward short term losses from previous years' losses for the next 8 years.

4. Do some charitable donations

While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax.
You get a tax relief if you donate to institutions approved under Section 80G of the Income Tax Act.
The rate of deduction is either 50 or 100 per cent, depending on the choice of the charity fund. There is no restriction on the amount of charity.
However, donations must be made only to specified trusts and also only donations of up to 10 per cent of your total income qualify for such a deduction. Remember to get receipts.

5. Spreading your income

Normally, if you invest in your wife's or child's name, the income generated from such investments will be clubbed with your income and taxed accordingly. However, if you transfer money through a deed to a child who is over 18 years of age and invest in his name, then the income generated from such investment will not be clubbed with your income.
Instead, that will be clubbed with the income of your child/wife and taxed accordingly.
Cash gifts received from specified relatives are exempt from income tax and there is no upper limit.
Similarly, cash gifts of any amount and from anyone received during your child birth, marriage or any other specified event are totally tax-free. However, any cash received from a non-relative where the value is in excess of Rs 50,000 in a particular year will be considered as income in the hands of the recipient.
You should make sure that you have a record and valid receipts for all tax savings investments made in your name. You do not want to be running around at the last minute collecting all the documents required for tax filing.