Top-Up Loans Offer Longer Tenure

Raman Murthy, email

I had invested in a couple of stocks and some physical gold in the 1990s. I want to sell them off and buy a small house in my native place after my retirement later this year. Do I have to pay any capital gains tax on the sale of these assets or can I have them squared off as I will be using the same to buy a house for my personal use?

While selling stocks or physical gold held as investment, the profits are subjected to capital gains tax. If stocks are sold after a year, they are considered as long-term capital assets, and they are taxed at 12.50 per cent if the gains exceed Rs 1.25 lakh. Short-term capital gains (STCG), on stocks sold within a year, are taxed at 15 per cent.

The cost price is the price of the share recorded on the day it was purchased. However, it is optional. You can also consider the actual price of the share of its purchase date.

Hina Shah, CFP®, LUHEM³ Personal Finance Coach & MF Distributor

Priya Singh

I want to take a personal loan for home renovation. I am the co-owner along with my husband. He pays the equated monthly installment (EMI) from his salary. Can I claim exemption in income tax on the personal loan under the head of house property? Can he also claim any benefit in his income tax return (ITR)?

You can take either a personal loan or a top-up home loan. Both will allow you to claim tax benefits, but only after proving that the loan was taken for renovation. Both these loans offer tax benefits to the person who is repaying the loan. If you both are paying the EMI, the benefits will be in proportion to the EMI break up.

A personal loan or a top-up loan only offers a maximum deduction of interest repayment of up to Rs 30,000 under Section 24(b) of Income-tax Act, 1961. The deduction available will be under the overall limit of Rs 2 lakh, but if the interest exceeds this amount, it will be carried forward up to 8 years.

Remember, the tax benefits can only be claimed upon showing all the up-to-date receipts and documents. No deduction can be claimed against the principal amount. Personal loans offer a maximum tenure of 5-7 years, are unsecured, don’t require collateral, and come at a comparatively higher rate of interest.

In contrast, top-up home loans have longer payback tenure of up to 20 years, with no additional security, as they are sanctioned on an existing housing loan. They also offer quick processing and a lower rate of interest. So, always apply for a loan that matches your situation and requirements.

Uma S. Chander, CFP®, Handholding Financials

Aditya Raj

I have recently retired and received a good amount as my Employees’ Provident Fund (EPF). I want to invest a part of it in fixed deposits (FD), Senior Citizens’ Savings Scheme (SCSS), and debt funds. Should I also invest a portion in equity mutual funds? I have investments of Rs 10 lakh each in equity mutual funds and stocks.

You can invest in equity-oriented hybrid funds with a systematic withdrawal plan (SWP), with overall return of 10-12 per cent. These are tax-efficient, and their returns typically outpace inflation. The capital gains tax after holding for one year is only 10 per cent. They also provide additional benefit of capital appreciation. FDs, SCSS, or debt funds are not as tax-efficient and cannot outpace inflation.

Analyse your monthly expenses before making your investment. You may also invest the entire sum in hybrid funds, which can offer a debt exposure of up to 35 per cent. Consult an advisor for better clarity.

Hina Shah, CFP®, LUHEM³ Personal Finance Coach & MF Distributor