Worry not — you could take a joint home loan!

Apart from increased tax benefits, you stand to get a higher loan amount too (provided the co-borrower has a regular source of income).

Here is your dose of  ‘know all’ on joint home loans.

Who can take a joint loan?
– A married couple or a parent and child can take a joint loan.

– Some banks allow brothers to take a joint home loan provided they will both be co-owners of the property. Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.

Exceptions: Sisters, friends or unmarried couples living together are, generally, not allowed such loans by banks.

Do both borrowers get tax benefits?
Yes. You as well as the co-borrower can avail tax rebates on the principal and interest repaid on the loan.

This way you can maximize your tax benefits.

Example: Let’s assume that the principal and interest repayment on your home loan for a given year is Rs 2.4 lakh and Rs 3.5 lakh respectively. Now, under Section 80C, you can get a maximum tax deduction of Rs 1 lakh on principal repaid and under Section 24 you can get a tax break of up to Rs 1.5 lakh on interest repaid. However, if you and your spouse had taken the home loan jointly, you would collectively be able to claim a deduction of Rs 2 lakh and Rs 3 lakh on the principal and interest repaid.

Note: The tax benefits are according to the proportion of the loan. That is, if the ratio of the loan is 70:30, then a loan of say, Rs 50 lakh will be split as Rs 35 lakh and Rs 15 lakh respectively and this ratio will be applicable while calculating tax benefits on interest/principal repaid on this loan.

Smart tip: For tax purposes, it is best to procure a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.

What documents does the bank need?
You as well as the co-borrower need to submit individual proofs for the set of documents required, as both of you are applying for the loan.

The list of documents differ from bank to bank. Following is the exhaustive list of documents. Check with your bank or NBFC which of these you need to submit for the loan processing.

Here is a standard list of options for each document required.

1. Identity proof:
– Driving license
– Voters ID
– Passport
– PAN card
– Ration card
– Employee ID
– Bank passbook
– Letter from a recognised public authority or public servant verifying your photograph
– Confirmation letter from your employer or another bank verifying your photograph

2. Address proof:
– Driving license
– Voters ID
– Passport
– Ration card
– Bank passbook or Bank account statement
– LIC policy/ receipt
– Utility Bill – telephone, electricity, water, gas (less than 2 months old)
– Letter from any recognized public authority verifying residence address of the customer
– Letter from your employer

3. Age proof:
– Driving license
– Passport
– Bank passbook
– PAN Card
– Birth certificate
– 10th standard mark sheet

4. Income proof:
The following set of documents that detail your credit profile varies according to whether you are a salaried individual or a self-employed individual.

a. Self Employed/Entrepreneurs
– A brief introduction of Business/Profession
– Balance Sheet, profit and loss account statement of income, proof of income tax returns
for the last 3 years certified by a CA
– Photographs
– Receipts of advance tax payments if any made
– A photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories Act
– Registration Certificate for deduction of Profession Tax
– Certificate of Practice
– Receipts of Bank loans
– Proof of investments (FD Certificates, Shares, any other fixed asset)

b. Salaried individuals
– Income Proof ( you just need to provide one of the options listed for income proof):
Latest Pay slip
Form 16
Increment/Promotion letters
Appointment letter
Pay slip (Last 2 months) with salary account bank statement
Certified letter from Employer
IT returns ( for three years )
– Investment proof (FD certificates, shares, any fixed asset etc.)
– Documents supporting the financial background of the borrower (his liability and assets if
any)
– Photographs

5. Property documents

If a flat is purchased from the builder, you need the following supporting documents to submit to the bank:
– Original copy of your agreement with the builder
– 7/12 extract – This is issued by the concerned land authorities giving details such as the survey numbers, area, date from which current owner is registered as owner etc.
– Property register card, which is obtained from the City Survey Department
– N.A. permission for the land from the collector, if its agricultural – If the land is agricultural and is being utilised for residential/ commercial/industrial use, then such agricultural land has to be converted to non-agricultural land and a Non-Agriculture Order has to be obtained from the Collector of the district where the property is located.
– Search Report and Title Certificate – A search report and title certificate can be obtained from an advocate who will conduct a survey of the title of the property by visiting the office of registrar. A legal opinion can avoid any legal hassles later and is mandatory to be filed with the agreement for sale.
– Development agreement between the owner of land and the builder
– Copy of order under the Urban land Ceiling Act
– Copy of building plans sanctioned by the competent authority
– Commencement certificate granted by the Corporation
– Building completion certificate
– Latest receipts for taxes paid towards the land or property or flat to be purchased
– Partnership deed or memorandum of association of the builders firm

In case you are buying from a Cooperative Society, then ensure you have the following documents in place:
– Original share certificate of the Society
– Allotment letter from the Society in your name
– Copy of the lease deed, if executed
– Certificate of the registration of the society
– Copy of the byelaw’s of the Society
– No objection certificate from the Society
– 7/12 extract or property register card in the Society’s name
– Copy of N.A permission for the land from the collector
– Search Report and Title Certificate
– Copy of order under the Urban Land Ceiling Act
– Copy of the building plans sanctioned by a competent authority
– Commencement certificate granted by Corporation
– The latest receipts of taxes paid for the property
– Original Agreement to assign / Deed of assignment

If you are constructing on your own land then you will need the following documents:
– Original sale deed of land and extract of Index II
– 7/12 extract or property register card in your name
– Copy of N.A. permission for land from the collector
– Search and title report
– Copy of tax paid under Urban Land Ceiling Act ( obtained from Commissionerate of Urban
Land Ceiling and Urban Land Tax )
– Copy of the building plans sanctioned by a competent authority
– Building permission granted by the Corporation
– The latest receipts of taxes paid for your land
– Estimate of the cost of construction certified by the architect

Exercising discipline is extremely important in every aspect of life. This cannot be more stressed in the case of managing your money. The manner in which you manage your expenses is the key to reduce liabilities and save more. According to a famous trading and investing legend- One must not spend time looking for the Holy Grail of investments or trading systems. It doesn’t exist. The Holy Grail is within you. It’s not the investment that’s going to determine success or failure rather it’s the discipline of the investor.

There are 2 friends Mr. X and Mr. Y both in their late 20s. Mr. X has a monthly income of Rs. 60,000, while Mr. Y has a salary of Rs 40,000 per month.  However, Mr. X’s job is more stressful and demanding; while Mr. Y has a comfortable job with low stress levels and better work life balance.

Mr. X lives a lavish life. He spends most of his salary; saves inconsistently. On the other hand Mr. Y is very regular in savings. From his monthly income, he saves Rs 15,000 a month in the following investment options.

Pension - Rs 3,000; Child plans -  Rs 2,000; Mutual Funds -  Rs 4,000; Emergency fund -  Rs 1,000; Vacation fund -  Rs 1,000; PPF – Rs 2,000; Mediclaim-   Rs 2,000

Suppose at the age of 44 years, both have a medical emergency. Due to lack of savings Mr. X would be stumped. However, in case of Mr. Y, his saving patterns, as visible below, would be able to save the day and give him the ability to meet the sudden expense.

One can never predict life. It’s difficult to anticipate bad times. Hence, it is essential to save for such rainy days. One should make it a habit to save, even if it’s a small amount.

Here are some steps which one can follow.

Track expenses: This is the foremost step. You should keep a check on monthly expenses. Unnecessary expenses should be avoided. One way to know how much one spent for a month is by having a monthly budget. This will show where the money is spent and also regulate the cash flows. This done over a period of time will help you identify areas where there is room to cut back on spending and save money. This will free up cash, which can be used to pay up existing debts or help save for the rainy day. Reducing spending, as opposed to earning more money, is the real key to gaining control of finances. Also, you must ensure that some money is set aside to cover monthly expenses for at least three months. These funds should be set aside such that can be readily accessed in case in times of emergency or as a contingency fund.

Pay off debts/ credit card debts: Paying off your debts early is one of the best investments you can make, specially paying off debts which have a high rate of interest.  This includes the credit card payments which generally have higher interest costs.

Create discipline: You need to have discipline in the way you spend and control your expenditure. It is the key to save. A consistent plan of saving and investing helps attain one’s goal. With discipline and time one can reach goals.

Importance of saving: Here is a simple example. There are 2 friends, Mr. A and Mr. B. Mr. B saves Rs 500 per month. Mr. A saves nothing. Over the years, here’s what happens.

The discipline of saving regularly has helped Mr. B be richer by Rs 19, 931. Also what you earn is not as important as what you save. If you spend everything you earn in futile pursuits and wasteful expenditure, then there is no point to the amount earned.

Invest: Start the wealth building exercise by investing in low risk investments. Once the base is strong, then increase the risk exposure by investing in higher return investments. Also, do not put all the eggs in the same basket. Your risk tolerance level goes a long way in defining your investment approach. However, do remember your investment objectives before you subscribe to an investment plan.

Follow a systematic investment plan: Invest at regular times. By doing a SIP, you can SIP (sleep in peace). This will help you reduce the cost and earn higher returns in the long term.

As seen in the case of Mr. Y, by saving regularly helped him meet the medical emergency with ease. By following these simples steps, you can make your money last longer!

Fixed deposits in banks are one of the most preferred investments by risk averse Indians who also look forward to earn a higher interest rate as compared to the normal savings account in the bank. Now these fixed deposits have another wonderful benefit to offer the customers and that is the provision to take a personal loan against it in times of requirement. This a great idea for personal loan that actually comes at a much lower rate of interest as the bank gets the security of the fixed deposit against which it provides the loan.

Key benefits of Personal Loans against Fixed Deposits

The reason for the growing popularity of this option as against traditional unsecured personal loans is the host of added benefits that come with such a loan.

• The interest rates available for personal loans against fixed deposits are lesser than conventional personal loans. The rates for such loans are generally 1 to 2% higher than the rates being paid by the bank for the fixed deposit.
• Such a loan does not require one to liquidate the FD which in that case lesser interest for being broken midway. This way the asset remains while the immediate financial requirements are met.
• The tenure for the personal loans against fixed deposits normally extends up to the maturity of the fixed deposits.
• The processing is also hassle free as the bank where you already have the fixed deposit will itself provide the personal loan against it.
• There is no prepayment penalties associated with these kinds of loans which gives the borrower the freedom to repay whenever his cash flow situation improves.

The Procedure for Personal Loans against Fixed Deposits

The process involved in availing a personal loan against fixed deposits is relatively simple and fast. In this case the fixed deposit will have to be hypothecated to the bank. At the time of the application the following documents will have to be submitted to the bank.

• Demand Promissory Note
• Pledge/lien Letter
• Loan Documents
• Overdraft Agreement
• Application Form
• Deposit Receipt
• Signed Receipt

There is a small processing fees that will be charged by the bank for the approval of this loan and the loan will be sanctioned in a very small time frame.

However one must carefully analyze the actual losses that will be accrued by taking a loan against the fixed deposit at an early stage of the deposit as compared to taking it against a deposit that is nearing maturity. In most cases it is preferable to take loan against deposits that are closer to maturity as the amount due will be more in this case. But at the same time one must understand that the tenure available for repayment reduces in this case. Weighing the pros and cons of both the situations the borrower will have to decide for himself which is the most advantageous situation for him. However in all cases taking a personal loan against fixed deposit is always better than a high interest rate pure personal loan.

Today there are a plethora of options in personal loans being provided by various banks and other financial institutions. Though the exact eligibility criteria for availing such personal loans varies from bank to bank there are few common guidelines which most of the lenders follow when it comes to approving a personal loan in India.  The basic parameters that determine an individuals’ eligibility include age, profession, annual income, credit history and outstanding liabilities at the time of applying for a personal loan.

Age Criteria: The general guideline followed by most banks and other financers is that for availing a personal loan a salaried individual must between the ages of 21 to 60 years while a self employed persona has to be within 25 to 65 years of age.

Employment Stability: A salaried person with a minimum of 2 years of professional service with 1 year in current profession and a self employed person with a minimum of 5 years of total earning tenure with at least 2 years in current profession is eligible for a personal loan. However these criteria are flexible depending on other factors that the lender shall decide.

Financial Situation: The current and previous financial condition of an individual sis an important consideration while approving a personal loan. Minimum levels of income have been specified by the different banks for applying for personal loans. The financial condition determines the repayment capacity of the individual and hence the lenders take maximum cognizance of this aspect while giving an unsecured personal loan. The amount of loan that one is eligible for is also decided based on this criteria.

Credit Rating: The credit history of the applicant is another aspect that lenders would like to look into while approving personal loans. Delays and defaults in paying EMIs of other loans or credit card dues are some issues which can lower the eligibility for personal loans from banks and other financial institutions. A good credit rating on the other hand enhances the total amount that one is eligible for.

Employer: Since the loan is unsecured the kind of employer the applicant is working with is given due credit while deciding eligibility for personal loans. Public sector employees and those working with reputed and established private companies thus are better eligible for availing personal loans as compared to others as there is stability in their income.

Outstanding Credit Liability: Any other pending loans which the applicant has at the time of applying for a personal loan are also likely to reduce the eligibility in terms of maximum amount possible. Since the amount is calculated as per EMI that the applicant can possibly repay the contributions towards other outstanding loans reduce the total personal loan amount drastically.

However in the case of personal loans the local branch manager is given substantial discretionary powers which he can use to approve a loan despite limitations in the eligibility criteria of the applicant. The customer must always try to bargain the best possible deal while negotiating with the branch manager for a personal loan.

When the insurance advisor approaches to sell a policy or plan, his persuasive tone might drown your doubts that are critical to wise investment. Only features that provide a feel good factor are disclosed to the customer and the aspects that may discourage the customer are conveniently hidden by the agent. A careful inspection of the fine print in the policy document will reveal many such loop holes that may actually prevent you from getting all the promised benefits of the policy. It is a good idea to get all your doubts clarified right from the beginning to avoid unpleasant surprises later. One may also approach the branch manager or the training manager of the insurance company in order to get all the details simplified whenever there is any confusion regarding the terms and conditions or the features of the plan.

Hidden Charges

Depending on the insurance variant and nature of the plan the fee and charges will vary. If you are opting for an insurance plan that combines investment and insurance your agent might casually overlook any mention of the allocation fees and administrative charges that the insurance company is going to take from the amount deposited. The first aspect through which the buyer will lose money when taking an insurance policy is the allocation fees, which comprises of the administrative charges and the risk premium charges. This implies that when you buy a policy there will be a considerable amount deducted from the money paid towards allocation fees and the remaining will only be used to buy units for your insurance account. The allocation fee is typically highest in the first year and thereafter reduces proportionally. Thus in order to recover the basic amount that has been invested the investor will have to wait till the NAV of the remaining amount grows to make up for this amount.

Lock in Period

The lock in period is another aspect that the advisor is usually shy to explain. This is the mandatory period for which the money must stay invested with that company in order to derive benefits. In case the investor wishes to withdraw during this period there are likely to be sever penalties which will significantly reduce the net amount payable to the investor. As high as 4 % of the amount paid may be lost in case withdrawing before completion of the minimum prescribed lock in period. Thus while making the decision to buy a policy one must look at the possibilities of any requirements for withdrawing in between and then put in the money.

Surrender Charges

The surrender charges are never mentioned to the buyer at the time of purchase. The agent will usually promise that the entire NAV of the plan will be paid out to the customer incase the policy is surrendered before its maturity. However, this is not the case in majority of instances. All companies do levy a fixed surrender charge if the policy does not reach maturity. This charge can be quite an amount considering the fact that the plan is held for 10 years or more and surrendered before maturity. Thus while buying a plan it would be wise to carefully consider the maturity period specified for that plan.

Terms and Conditions

There are several other factors that the terms and conditions of any insurance policy mention to which most buyers do not pay any heed at the time of purchase. However this slip up may actually render the policy invalid or make it extremely difficult to claim the full benefits at the time of requirement. It is in your own interest and the interest of the family members whom you are trying to protect, which warrants a careful study of all the clauses that is mentioned in the fine print of the policy before actually signing the deal.

Moving into one’s own home is a joy, which is to be felt not explained. It is utopia what with the poojas, house warming functions, searching for just the right furniture and fittings, praises you get for having taken care of the finer parts in construction and decorating the house and the pride in having acquired a physical symbol of success.

After the festivities are over, and with the dawn of a new month, a new realization comes home. For the fortunate few, it is the reminder to fund your bank account, as the loan EMI is due after a week. For others the money simply flew out of the bank account.

It is time for us to act like the fund manager of a mutual fund or investment fund. Taking informed decisions to manage the asset that we call home and the liability that we call housing loan. By being prudent, you can get high “returns” in the form of saving on interest outflow.

Fund Management When Carrying a Home Loan

As a fund manager of the house, one has to find ways to maximize the benefits of the cash flows. Make a list of all the loans and savings/investments that you have made. Do you find places where the savings/investment is giving lesser returns than the loan rates? This can typically be seen with your endowment insurance plans, your EPF and PPF, the postal deposits, sometimes-even ULIPs. Why should you be invested in something when you are paying higher interest to somebody else? It is better to close all or most of these lesser returns savings/investments and divert the funds to close the home loan.

Care should however be taken to replace an endowment insurance plan with a term plan of higher cover. Your employer and your EPF officer will allow withdrawal of funds from the EPF account for buying and closing the loan of a house. The PPF is not so flexible with letting go of your money. ULIPs and the postal deposits can be closed only after the stipulated 3 years of lock-in.

Ways to repay your debt quickly:

There are ways to come out of the EMIs and make your loan tenure shorter:

1. Partial pre-payment

2. Switching to a lower rate

3. Increasing the EMI

Now let us look at the options in more detail. The best part is that, the options do not in any way add to your existing budget.

Partial Pre-Payment

This is the easiest way to close a housing loan faster. The method is to make use of any one-time income like a bonus, salary arrears, gifts from friends/relatives, any wind fall gains from shares, property sold, deposits closed, tax saving investments maturing, closure of savings that are giving you lesser returns than the housing loan, etc. to partially close the housing loan.

The effect is that the one-time payments help to reduce the principal balance in the loan. And when the EMIs continue, they have lesser of the principal to cover. So the same EMIs need a lesser time to close the loan. More earlier and more frequently the partial pre-payments happen the faster the loans close.

Banks generally allow partial pre-payment starting from Rs.10,000/-. There are no charges for partial pre-payment or even full prepayment of housing loans currently.

Switching To a Lower Rate

The interest rates current are in a rising trend. There are times when the interest rates start going down too like NOW! Based on the interest rate reset period, different banks will reduce their rates at different times. If the reset interest band of your lender is a wider band, you may be at a higher interest rate for a long time after other banks have started to reduce their rates.

Switching to a lower interest rate will shave off a few years from your housing loan. Care however has to be taken about not jumping too many times or with low interest rate differences. A heartening detail though is the removal of prepayment penalty. This can definitely boost the prospects of a home loan switch easing the cost burden for the loan borrower further!

Do remember that property verification and other legal paperwork will have to be done afresh in the case of a loan transfer. Also, for a loan transfer to be effective you should have a clear track of having cleared all the EMIs on time, every time.

Increasing the EMI

This is another option to close the loan faster. If you can spare a portion of an increment to increase the EMI, considerable saving could be made. For example a Rs.30,00,000/- loan for 20 years will need an EMI of Rs.28,950/-. If you can spare an additional Rs.2,300/- per month, the loan can be closed in 15 years itself.

The EMI can also be increased by making use of money that was going into an endowment insurance plan or a recurring deposit in a post office.

Increasing the EMI can be done at any point during the tenure of the loan. There are generally no charges for increasing the EMI.

Summary

Only after closing the home loan does one really become the owner of the house. Closing the loan as soon as possible not only relieves the mental strain of carrying a debt but also releases more money into the family budget.

An Assumption on behalf of the reader: we all know that children need to know the ways of money and it should not be left to destiny or to be learnt by trial and error later on in life.

“what and how to teach your children about money” – Winston Churchill’s famously quoted – “I love to learn, but can’t say the same thing about being taught.”

With children and more so with teenagers it is never easy to “teach”, they simply don’t want to be taught. But they should just know. They should know about money.

Yeah, but what is that, they should know about money?  Your child should know that

-          Money is a scarce resource and has to be used judiciously

-          Money has to be earned and doesn’t come free

-          How much you want and how much you have will not always match

-          Money is really not everything. It is important but not the only

important thing in life

You’ve to get them to learn, by themselves in an easy and fun way, so they own it up, take pride and practise. And with something like money, which can be a bit tricky, sensitive and sometimes dangerous how do you do this effectively without sounding preachy?

The answer is a well designed and executed “Allowance Plan”! Give your children pocket money. Now, don’t jump off your seat. Read on…

Children who are ten years of age are ready for an allowance plan. Regular (monthly / fortnightly / weekly) allowance money can be given to them that they may use to handle some of their expenditure. How much money will depend on what all expenses they will handle.

For example: One could start with some basic expenses like say, snacks after school. The child may want to buy a drink or grab a quick snack from the canteen during or after school. Sit down with the child and find out how much he normally would spend on this snack every day. Let’s say he spends Rs.20.00 on the daily snack. For five days in a week he would spend Rs.100.00. So every Monday you could give him Rs.120.00 (20% extra for the child to use his discretion on what to do).

Now, it is simple, instead of giving him Rs.20.00 everyday or whatever he asks for now and then, you are giving him Rs.120.00 every week to manage his snack expenses. If, he tends to spend more on the snack because he has more in his pocket, well, he will learn that money is a scarce resource when you say “Sorry, this week’s quota over” if he wants a replenishment middle of the week. You could gradually increase the amount and the expenses he may handle himself.

The allowance could be linked to some chores in the house. All basic work, like putting away her books and keeping her room clean are to be done anyway and cannot be linked to allowances. But some work which generally children are not expected to do – like clean the insides of the car once a week / clear the table after dinner and put away washed vessels / soap and clean furniture once a fortnight can be linked to allowances.

You will have to insist that the work be completed 100% to be eligible for allowance. Shoddy work should not be condoned. A sense of seriousness has to be instilled in the process. This will teach the child that money has to be earned and understand that time and effort goes into earning money. But tread the line carefully so as to not permit the child demand money for small helps -  like you ask your child to make you a cup of tea after a tiring day, she shouldn’t be asking for money to do so.

Encourage the child to put aside money as savings for planned larger expenses like if her friend’s birthday is round the corner and she wants to buy a gift, she can put away part of her allowance starting 2-3 months in advance to cover up the extra expenditure. In any case she does get a bit more than what she absolutely needs. And sometimes skipping snacks or buying something less expensive is not too bad either. The 3 box idea is a good one too. Keep 3 transparent boxes and name them “SPENDING” “SAVING” “SHARING”.

The allowance once received is split between these three boxes, say Rs.100 for spending, Rs.10 for saving and Rs. 10 for sharing. The saving box is to be used for planned expenses and the sharing box can be opened and the contents donated to a nearby orphanage or animal care centre – whatever cause your child is passionate about. Make sure to collect a receipt in the name of the child and safe keep it. Imagine the child’s pride for having contributed her bit.

Tell the child what not to do with the money so earned. Like he cannot use it to buy anything dangerous or cannot use it to bully or belittle others. But do not tell the child what to do. He should be permitted to do what he wants within large boundaries. He can experiment with speculating or lending to others. If it goes wrong he learns from it. You may however want to review with him once a month what he has been doing and what he has learnt from it.

Whatever goes right, whatever goes wrong, learning is a continuous process for both you and your child. Enjoy the journey. But always remember – “Allowance is not the child’s birth right. It is only a tool to learn how to handle money”. With the right rules in place, the right amount of freedom and the right example set by personal behaviour your child will learn lessons on money that would stay for life. Good luck.

The May review may see the Repo Rate hitting a three year low, as the apex organization for monetary policies, the RBI, is expected to bring it down for third time in the year

The Reserve Bank of India realizes the need to support the various economic activities, so as to help them sustain in the current environment. The road to achieving financial solidarity and revive the growth rates of the economy, while keeping inflation levels under control, is one that requires great patience and farsighted vision. The recent developments though, have given the supreme monetary authority of India, the impetus to implement further rate cuts and ease the pressure on the economy.

Economists are confident of further reduction in the Repo rate in the policy review scheduled for May, because of the increased headroom for the Reserve Bank, on account of the reduced inflation levels. Inflation came down below 6 per cent for the first time in 3 years, which has helped the apex organization in its plans to incorporate a further cut in the repo rate, in line with the demands of the industry.

Even though the rate cut is extremely probable, it would be extremely naïve to think that the RBI would follow up with similar announcements in the future. The condition, even though has improved, is not in a state where the bank can let go of its cautious approach. While the wholesale inflation has dipped to manageable levels, the retail inflation has still not subsided sufficiently and the difference continues to be massive. Reduced gold prices, crude oil prices and the aforementioned factors, will lead the RBI into implementing a rate cut, but it may the last one for a while.

In today’s world of ever increasing expenses, spending on your children results in a substantial outflow from your pocket. However, did you know that you can get tax benefits on many expenses and investments made in your child’s name? This includes a wide variety of expense heads and investments. Most of these investments fall under the ambit of Sec 80C within the Rs. 1 lakh limit. Here are a few such cases, which will help you reduce your tax outflow:

Interest on Education Loan: The cost of education for your child is a huge outflow, and needs to be well planned. Most of you may opt to take a loan to fund your child’s higher studies. While this results in a repayment burden, you can gain partially, as the interest portion on education loan is fully tax deductible under Section 80E of the Income Tax Act. This loan can be taken by the borrower, parent or spouse of the student from a recognized financial institution. The loan must be taken for a full-time course, which can either be a graduate course in engineering, medicine or management or post graduate course in engineering, medicine, management, applied sciences or pure sciences including mathematics and statistics.

Payment of tuition fees: Tuition fees paid by the parent to fund his child’s education in any school, university, college or any other education institution within India can be deducted under Sec 80C, upto Rs. 1 lakh in a year. The amount of deduction is restricted to two dependent children and should pertain only to actual tuition fees paid. However, both husband and wife have a separate limit of two children. So each parent can claim for two children each.

Health insurance premium: When you take a health insurance for your child, you can claim the premium paid as a deduction from your income, upto a Rs. 15,000 in a year.

Expenses on treatment of disabilities and certain ailments: The Income Tax Act allows the parent to claim a deduction from his income, an amount incurred towards treatment of specific disabilities and illnesses of his child under two sections. Sec 80DD of the Act states that expenses incurred towards medical treatment of dependent children suffering from a disability are eligible for deduction. The limit of deduction under this section is Rs. 50,000 for a normal disability (impairment of atleast 40%) and Rs. 1 lakh for severe disability (impairment of 80% or above). Sec 80DDB of the Act allows expenses incurred towards treatment of specified illnesses for children to be deducted from income, upto Rs. 40,000.

Deduction of allowances: There are a host of allowances specified in the Income Tax Act, which is allowed by an employer as a deduction from the income of the employee. The first is a hostel allowance of Rs. 300 per month per child, upto a maximum of 2 children. However, these expenses need to be incurred in India. The next is an education allowance, wherein Rs.100 per month per child upto a maximum of two children is exempted from income. Here also, the expenses need to be incurred in India. Medical expenses incurred for dependent children are allowed as a deduction upto Rs. 15000 per year on furnishing of medical bills. Most of these upper limits are those which have been set several years ago, and seem like an insignificant amount today, on the back of growing inflation. Several representations have been made to the Government to increase the exemption limits of these allowances.

Minor child’s income: When you make investments in your child’s name, the income earned from these investments will be clubbed with your income. However, if you have invested anywhere in your minor child’s name and this investment generates an income, you can claim upto Rs. 1500 as a deduction on this income. This is available for up to two children. For example, you can invest upto Rs. 15000 in a long term FD which gives an annual return of 10%, and be exempt from tax. Remember that if the interest is on a compounding basis, the interest amount will grow over the years, resulting in an increase in tax liability.

Formation of a Trust: You can set up a trust in your minor child’s name to save on tax. You will need to make an irrevocable transfer to the trust, so that the money will not be claimed by you. When you make investments through this trust, the income made through these investments will not be clubbed with your income. Even though the trust has to pay tax on this income, the total tax liability will be lesser if the income is clubbed with your income.

When you have children, you will be forced to incur various kinds of expenses on them. A smart investor is one who knows how to get maximum benefit on the expenses incurred on his children, as well on the investments made in their name.

The much anticipated and waited RBI’s Annual policy announcement happened today. With inflation and current account deficit dipping, the expectations of a rate cut were ripe. The Reserve Bank of India’s Macroeconomic and Monetary Developments for 2012-13 announced yesterday adopted a hawkish stance and said that the room for monetary easing was limited, as decreasing inflation was not as low enough.

The rate at which the Reserve Bank of India lends money to commercial banks is known as repo rate while cash reserve ratio or CRR is the portion of bank deposits that all commercial banks have to deposit with RBI. Meeting expectations, today’s announcement saw RBI cutting the repo rate by 25 basis points but kept CRR (Cash Reserve Requirement) unchanged at 4%, causing disappointment to the industry and stock market.

The repo rates, ie, the rate at which banks borrow from RBI is now changed from 7.5% to 7.25%.  Last cut was seen in March 2013 when the rate was brought down by 25 bps. Although inflation was a deterrent, the cut in repo rates is good news as it is likely to lower the cost of borrowing for both individuals and corporate. The main beneficiaries of this cut would be the home loans borrowers, auto loan borrowers and other rate sensitive sectors. It is also expected to prop up growth which had plummeted to 15 quarter low of 4.5%.

This time RBI has reinforced the regime of lowering interest rates as the cut in repo rate usually results in reduction of interest rates for borrowers. Hence a lowering of home loan interest rates is expected. But Repo cuts generally take time to show its effects. Following last revisions made by RBI, the banks adopted a cautious stance and did not go ahead with rate cuts. This time also borrowers are expected to wait little longer for interest rate on their loans to fall, even as the Reserve Bank of India has eased policy rates today. A CRR cut sees a faster cut in the loan rates as it leaves more funds with the banks for lending. Loan rates cuts would also bring in lower deposit rates.

Cutting of repo rate will be good for new borrowers if banks go ahead and cut their base rates. Old borrowers under floating rates can expect a revision in interest rate. The RBI Monetary Policy Statement also stated that there is a wide variation in the interest rate charged to retail borrowers by banks.

There has been a 40 bps cut since 2012 according to India Ratings. As there was wide expectation of a rate cut, in the same way, hopes for interest rates lowering are also high. The revision in the REPO rate will is also expected to have a positive impact in the real estate market and associated sectors like steel, cement, etc. So, lower interest rate on home loans is the need of the hour.