Reserve Bank of India (RBI) has linked the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
In the near future co-operative banks will find much easier to extend home loans if the loans are for only a small portion of the property value. The Reserve Bank of India (RBI) has coupled the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
Therefore for home loans up to Rs 30 lakh and below 75% of the value of the property, banks will be required to set aside only 50% of the capital which they were required to maintain earlier.
In case the loan amount exceeds Rs 30 lakh in absolute terms but is still less than 75% of the property value, the capital requirement will be 75% of standard requirement. But there is no relief in capital adequacy requirement, if the bank provides loans for more than 75% of the value of the property.
The amount of capital banks are required to set aside for each loan is decided by the minimum capital adequacy ratio prescribed by the central bank.
Capital adequacy ratio is the ratio of a bank’s net worth to its risk-weighted credit exposure. The risk weight age, in turn, is the ratio which determines the credit risk in a particular loan asset.
However capital adequacy ratio is fixed at a flat 10% for banks, RBI reduces the capital requirement by increasing or reducing the risk weight age for loans in certain segments. For instance, for home loans up to Rs 30 lakh, the risk weight age on the loan is 50%. Hence banks will be required to set aside only 50% of the capital they keep aside for loans with a 100% risk weight age.
RBI increases or reduces the risk weight age depending on its observation of risk in a particular segment. Banks are able to reduce loss with the higher risk weight age in the event of a default. Banks also discourage lending in such segments by making it more capital intensive.
The central bank has made norms easier for branch and ATM licensing for co-operative banks, subject to their maintenance of a minimum CRAR of 10% on a continuous basis. There is one more condition for the co-operative banks that they need to have net NPAs of less than 10% and should have made a profit in the preceding year.
Tuesday, June 17, 2008
Tuesday, June 10, 2008
You can avail tax deduction on home loan under act 1961
Under the Income Tax Act 1961 individuals can claim a tax deduction on the principal and interest components of a home loan. These deductions are mentioned under Section 24(b) to assess who have taken a loan to either buy or build a house.
In case of following conditions interest on borrowed capital is deductible up to Rs 1.5 lakhs:
▪ Capital is borrowed on or after April 1, 1999 to acquire or construct a residential property.
▪ the acquisition/construction should be completed within three years from the end of the financial year in which capital was borrowed.
In fact the amount should have been borrowed before April 1, 1999 for the purchase, construction, or repairs of a house. If the loan was taken on or after April 1, 1999, the construction should be completed within three years from the end of the year in which the loan was taken. In addition, principal repayment of the loan borrowed is eligible for a deduction of up to Rs 1 lakh under Section 80C from the assessment year 2006-07.
The bank at the time of sanctioning the loan certifies that the interest is payable on the amount advanced for acquisition or construction of the house, or as refinance of the principle amount outstanding under an earlier loan. In case the conditions mentioned are not fulfilled, interest on borrowed capital is deductible up to Rs 30,000.
The maximum deduction permitted in a financial year for the original loan (if any) plus for any additional loans taken is Rs 1.5 lakhs. Therefore, if the deduction on an existing loan is less than Rs 1.5 lakhs, then you can claim for further benefits from an additional loan, subject to an upper limit of Rs 1.5 lakhs in a financial year.
Here one thing is to be taken note of is that you can claim the tax benefits under Section 24 and deductions under Section 80C of the Income Tax Act only on the payments which have been made. If a person fails to make EMI payments, he cannot claim tax benefits on them.
According to Income Tax Act, the person who has taken the loan is eligible for tax rebates. Interest on a fresh loan can be claimed as a deduction, subject to the upper limit. The interest on a loan, taken for repairs, renewals or reconstruction, also meets the criteria for the deduction of Rs 1.5 lakhs.
A husband and wife, both taxpayers but having independent income sources, can claim for tax deductions on the same housing loan. In this case, the tax benefits can be shared to the extent of the amount of loan taken in their names.
In case the claim found to be faulty i.e. a home loan is simply an arrangement between a loan-seeker and a builder or with a third party for the purpose of claiming tax benefits, the tax benefits will not be allowed and benefits previously claimed will be clubbed to the income and taxed accordingly.
At times person buys a house and sells it within the same year or after three years, and earn a profit on the deal then a capital gains tax liability arises on it. For example, if a person purchases a house for Rs 45 lakhs with a loan and sells it in the same year for Rs 65 lakhs, he makes a profit of Rs 20 lakhs.
The short-term capital gains tax will be charged on the profit made by selling the house as the sale took place in the same year. But, if the sale had taken place after three years, then a long-term capital gains tax liability would have arisen.
According to Section 54 long-term capital gains will be exempt from tax if the amount (after factoring in the indexation benefits) is invested in capital gains tax saving bonds or in a house.
In case of following conditions interest on borrowed capital is deductible up to Rs 1.5 lakhs:
▪ Capital is borrowed on or after April 1, 1999 to acquire or construct a residential property.
▪ the acquisition/construction should be completed within three years from the end of the financial year in which capital was borrowed.
In fact the amount should have been borrowed before April 1, 1999 for the purchase, construction, or repairs of a house. If the loan was taken on or after April 1, 1999, the construction should be completed within three years from the end of the year in which the loan was taken. In addition, principal repayment of the loan borrowed is eligible for a deduction of up to Rs 1 lakh under Section 80C from the assessment year 2006-07.
The bank at the time of sanctioning the loan certifies that the interest is payable on the amount advanced for acquisition or construction of the house, or as refinance of the principle amount outstanding under an earlier loan. In case the conditions mentioned are not fulfilled, interest on borrowed capital is deductible up to Rs 30,000.
The maximum deduction permitted in a financial year for the original loan (if any) plus for any additional loans taken is Rs 1.5 lakhs. Therefore, if the deduction on an existing loan is less than Rs 1.5 lakhs, then you can claim for further benefits from an additional loan, subject to an upper limit of Rs 1.5 lakhs in a financial year.
Here one thing is to be taken note of is that you can claim the tax benefits under Section 24 and deductions under Section 80C of the Income Tax Act only on the payments which have been made. If a person fails to make EMI payments, he cannot claim tax benefits on them.
According to Income Tax Act, the person who has taken the loan is eligible for tax rebates. Interest on a fresh loan can be claimed as a deduction, subject to the upper limit. The interest on a loan, taken for repairs, renewals or reconstruction, also meets the criteria for the deduction of Rs 1.5 lakhs.
A husband and wife, both taxpayers but having independent income sources, can claim for tax deductions on the same housing loan. In this case, the tax benefits can be shared to the extent of the amount of loan taken in their names.
In case the claim found to be faulty i.e. a home loan is simply an arrangement between a loan-seeker and a builder or with a third party for the purpose of claiming tax benefits, the tax benefits will not be allowed and benefits previously claimed will be clubbed to the income and taxed accordingly.
At times person buys a house and sells it within the same year or after three years, and earn a profit on the deal then a capital gains tax liability arises on it. For example, if a person purchases a house for Rs 45 lakhs with a loan and sells it in the same year for Rs 65 lakhs, he makes a profit of Rs 20 lakhs.
The short-term capital gains tax will be charged on the profit made by selling the house as the sale took place in the same year. But, if the sale had taken place after three years, then a long-term capital gains tax liability would have arisen.
According to Section 54 long-term capital gains will be exempt from tax if the amount (after factoring in the indexation benefits) is invested in capital gains tax saving bonds or in a house.
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