Confused about tax benefit for housing loan?

Will you be eligible for tax benefits on a loan that you took to build a house on the land owned by your mother?

Can you claim deduction on personal loan interest if the same has been used for construction along with the home loan?

Home loan expert Harsh Roongta throws light on such complex matters in a chat with Get Ahead readers on January 30..

For those of you who missed the chat, here is the transcript.

Part I: Best bank for home loan?

Aurobindo asked, Sir, I'm working in a private firm, getting Rs 14K/pm, My question is 1) Will I get home loan being working in a small firm? 2) If yes what kind of loan do you suggest me?

Harsh Roongta answers, As long as you have adequate proof of your income -- ie the salary is being paid through a bank account, there are statutory deductions such as profession tax and PF etc -- you should not have a problem in getting a home loan.

shanmg asked, Hi, In my hometown we have a land in my Mother's name. I want to build a house on that land and I want to know if I can avail of a home loan. My mom will be co-applicant, what are other implications?

Harsh Roongta answers, You should be able to get a home loan based on your income and your mom being one of the loan applicants. However, you will not be eligible for any tax benefits as you will not be an owner or co-owner of the property.

NELOGAL asked, SIR CAN I CLAIM PERSONAL LOAN INTEREST WHICH IS TAKEN FOR HOME CONSTRUCTION ALONG WITH HOME LOAN?

Harsh Roongta answers, Yes, you can. As long as you can prove that the personal loan was used for the construction, you will not have a problem with this. You will need a certificate from the bank if the property is self-occupied.

kumardnm asked, Dear Mr.Roongta I am Kumar from Bangalore.I am buying an apartment for Rs 2,5ll k with a loan amount of Rs 10l k...which is the best bank to go in for? At present Standard Chartered Bank is offering me @ 10.5% floating rate....is it better to go for floating or fixed?

Harsh Roongta answers, I think I have answered this before. You have to do some homework before you can find out which is the best bank for you. If your income and previous credit history is satisfactory, then you should get a floating rate home loan for around 9.75% (give or take 0.25%).

Milind asked, I have purchased a home in July '06 on a loan and I am selling it in Feb '07. Will I get the benefit of tax for this year?

Harsh Roongta answers, Very interesting question. Please send this to us on info@apnaloan.com and we will revert with the answer to this in a few days.

Anupam asked, Is it better to avail floating rates or fixed rates for home loan? I plan to take home loan for about Rs 30 Lakhs.

Harsh Roongta answers, This is one question that bothers all buyers. Fixed gives a sense of security... while you wonder am I paying too much all the time. Our recommendation on this million dollar question is given below.

Firstly, this is not a one time decision and needs to be reviewed periodically. Secondly, understand what exactly 'Fixed rate' and 'Floating rate' mean before you take a decision.

Fixed Interest Rate loans: These loans are normally priced higher than a variable rate loan for a similar tenure. That is, in the present market scenario while you would be able to get a floating rate loan for 20 years at 9.5 per cent interest rate, the fixed rate would be somewhere around 10.5 to 11 per cent.

The other option is variable/ floating rate loans. This kind of loan is also called 'adjustable rate' home loans. Here, the interest rate is linked to a benchmark rate. Some banks use their 'prime lending rate' (PLR) as the benchmark rate. Some banks have a specific benchmark rate that they use for home loan purposes.

Typically, the interest rate applicable to your loan tends to be a certain percentage below this benchmark rate. Ideally the benchmark rate should vary exactly as per the market conditions (though it rarely does – it is quick to go up but rarely shows the same alacrity while going down). Apnaloan.com's recommendation is to go in for a transparent floating rate in today context (this answer is given in January 2007).

deep asked, Hello Sir, I have booked a flat with agreement value worth Rs 31 lakhs. But, I am eligible for a Rs 18 lakhs loan based on my salary. The bank says, as per RBI guidelines, I need to pay Rs 13 lakhs on my own. After that they will be disbursing the Rs 18 lakhs loan amount. Is the above statement true? If yes,then pls suggest an alternative as I don't have Rs 13 lakhs to pay first.

Harsh Roongta answers, Normally, as a matter of practice (as distinct from being required as part of regulation), most banks do insist that you have to bring in your entire own contribution first before they will start disbursing the loan. In any case, you will need to bring in this amount at some point of time. If your money is stuck in some time bound investment where there is a penalty for pre-mature withdrawal, you can show proof to the bank and they may relent on this requirement. In any case, you will have to satisfy the bank about your ability to bring in this amount.

venkata asked, Recently RBI has increased the interest rate. Now what would the banks charge for floating and fixed interest rate for home loan?

Harsh Roongta answers, It is a misconception that RBI controls the interest rates that banks charge you. RBI of course is the most important factor among the various factors that determine your interest rate but RBI DOES NOT DIRECTLY CONTROL THE INTEREST RATE CHARGED ON YOUR HOME LOANS.

Newbie asked, Recently I bought a place with a loan from a leading financial institution (ICICI Bank), I draw a salary of Rs 16,000/ month - gross. One thing I did not understand was they have taken a guarantor from me and it was not clear whether he is a financial guarantor or what? A bunch of papers or booklet was signed by the guarantor. My friend and me did not get a chance to read it completely. What can be the reasons or consequences of the same?

Harsh Roongta answers, All guarantors are automatically financial guarantors. Your friend has the same liability as you have in respect of that loan. Should you default, he will have to pay off the loan. It will also affect his own ability to raise a loan for himself.

Sameer asked, Hi Sir, does Apna Loan provide Home Loans? If yes, then at what percent and at which address I can contact if I am staying in Noida?

Harsh Roongta answers, www.apnaloan.com assists consumers in making banks compete for your loan. If you login to www.apnaloan.com, you can fill in a simple form and our consumer delight executives will be happy to respond to your needs by calling you and directing you to multiple banks who are eager to service consumers such as yourself.

mahaboob asked, Hello Sir, Good Afternoon, Sir I am a NRI residing in Kuwait. My native place is in Kadappa, Andhra Pradesh. I want to take a loan for house. But i don't know the procedure; where to go and how to take loan. Please let me know who are the best loan providers.

Harsh Roongta answers, I have already mentioned that there is no such thing as a single best bank. It depends on who you are and what you need. The best way is to make the relevant banks compete and find out who is willing to give a good deal for you.

aniji asked, Hi, I am having a house loan for a property in Jammu where my parents are staying. Presently I'm working in Delhi and staying in rented accommodation. Can I take benefit of HRA and housing loan on both. Please guide

Harsh Roongta answers, Contrary to popular opinion, there is no restriction under the I-T Act to get both. Many salaried consumers take a home loan to acquire a residential property, but do not stay in that property for various reasons. They stay in rented premises for which they pay rent.

If they are receiving a house rent allowance from their employer, a question frequently arises is -- whether they can claim exemption of their HRA based on the rent actually paid by them as well as the interest payable on the loan taken to acquire the owned property? This is such a widespread question that it rightly justifies an elaborate reply of this kind justifying that both deductions are available.

Rohit asked, Harsha can I avail of tax benefit on renovation loans also?

Harsh Roongta answers, As long as the loan is used for repair, renewal or reconstruction of the concerned house property the interest is deductible subject to specific limits. The principal payment is not available.

Harsh Roongta says, Thank you for such interesting questions. Sorry was not able to answer all of you. But please look up the chat transcript and you can logon to www.apnaloan.com for any further queries that you might have. See you next fortnight for another chat. Good bye.

Part I: Best bank for home loan?