HT Estates - - Property Classifieds - Harsh Roongta

I will be tak­ing a home loan from a fi­nan­cial in­sti­tu­tion for ten­ure of 20 years. How­ever, in the sanc­tion let­ter, it is men­tioned that I will have to take in­sur­ance cov­er­age for the loan amount from an in­sur­ance provider they have a tieup with. Is this le­gal?

—Tarun Lamba Most banks only pro­vide in­sur­ance fa­cil­ity as an add-on (for which the bor­rower needs to pay ex­tra amount) and if the bor­rower has not cho­sen the fa­cil­ity then there is no in­sur­ance cover. Buy­ing such in­sur­ance from the in­sur- ance com­pany which has a tie-up with the lender is not com­pul­sory. If the bank in­sists on the in­sur­ance, you can al­ways buy a pol­icy from any other in­sur­ance com­pany and as­sign the same to the lender. How­ever, it is in the in­ter­est of your de­pen­dents that you take a term in­sur­ance plan and a crit­i­cal ill­ness 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 your de­pen­dents are not bur- dened 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, there are plenty of other lenders in the mar­ket who will agree to ac­cept in­sur­ance pol­icy from other in­sur­ance com­pa­nies. I have bought a flat in Navi Mum­bai in Oc­to­ber 2010 against which I took a loan of R19 lakh. In July 2011, I sold a flat in Pune for R20 lakh. This flat was seven year old. Can I use the pro­ceeds from this sale to square off my loan and thus also not at­tract any long-term cap­i­tal gains tax?

—Mo­han Sinha

Since you have pur­chased a flat within one year be­fore sale of your house, you can claim ex­emp­tion in re­spect of cap­i­tal gain aris­ing from sale of your Pune flat. Ar­guably, it will not mat­ter how you funded the flat pur­chase. It will also not mat­ter how you use the pro­ceeds of the sale of your house as long as you sat­isfy the con­di­tion of hav­ing pur­chased one house within one year be­fore sale of the other house. The quan­tum of ex­emp­tion from cap­i­tal gains is pro­por­tion­ate to the amount of cap­i­tal gain – and can be de­ter­mined by the amount in­vested in your new house. Since you have not spec­i­fied the cost price of your old house and pur­chase price of the new house, it is not pos­si­ble for us to tell the ex­tent to which you will get the tax ex­emp­tion.

I am plan­ning to with­draw my en­tire prov­i­dent fund bal­ance that I have saved in the last five to six years. I thought of do­ing a part pay­ment for my home loan and keep some liq­uid cash for crit­i­cal times. Please ad­vise if this is a smart idea.

—Sharad Deep Prov­i­dent fund is meant to be your re­tire­ment fund and hence should not be touched as far as pos­si­ble. In any case, with­drawals from the PF are avail­able only af­ter five years. With­drawal will not be al­lowed from your em­ployee PF for par­tial pre-pay­ment of home loan. It is ad­vis­able to con­tinue re­pay­ing the loan EMI’s from your cur­rent in­come. As far as mak­ing par­tial pre-pay­ment of the loan is con­cerned, it is a good op­tion only if you have sur- plus funds and you are sure that you will not need these funds in the near fu­ture. In case we take a home loan and the project gets de­layed, is there any pro­vi­sion to safe­guard us from spi­ralling bank in­ter­est?

- Rakesh Singh No. Even of the builder de­lays the project, you must con­tinue to pay the loan or the pre-EMI to avoid be­ing shown as de­faulter with de­lays in your credit his­tory. This will im­pact your fu­ture abil­ity to get a loan or credit card. Please ser­vice the loan even if the project is de­layed to en­sure clean credit his­tory.

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