Awareness regarding home insurance is negligible in our country as compared to other countries. Most of the people are not aware about ways to secure their home against unexpected eventualities. If something happens to their dream home, what is the outlay available to recover the financial loss? In such a case, there is a need to make the customer understand the importance of a home insurance policy and its benefits.

What does a home insurance policy cover?

There are various home insurance package policies available in the market that cover major risks associated with home and its contents against perils such as fire, theft, burglaries, floods, earthquakes and other natural calamities. Under these plans, the structure and/or contents like jewellery, electronic & portable items, furniture and fragile items etc., are covered. The various perils under the policy not only include natural calamities, but also risks like bursting of pipes, riots, and malicious damage. There is also an option to insure your home against terrorism by paying an additional premium.

What one often does not know is that it covers losses on account of third party liability as well.

A significant aspect that every home insurance policy buyer should keep in mind is how the sum insured for their property is determined and its implications in case of a claim. Currently, a majority of the home insurance policies available in the market provide the option of insuring your home i.e., the structure, at either reinstatement value or indemnity value. In case your home has been insured on the reinstatement value, what will be accounted for is the cost of construction only. To be precise, the cost incurred to reconstruct the house (labour and material cost). On the other hand, if the house was insured on its indemnity value, the amount paid will be the reinstatement value less depreciation which is based on the age of the property.

The author is vice-president & Head - Non Motor Claims, Bajaj Allianz General Insurance. The views expressed in this article are his own

I am a retired government employee aged above 70 years. My son, who is employed in Chennai, regularly sends me about Rs 50,000 p.m., which is sufficient for me to meet my expenses as I am staying in my own house at Panipat. I also have some income from interest and pension. Is the yearly amount of Rs 6,00,000 received from my son subject to tax?

— Raj Gupta

The amount of Rs 6 lakh received by you from your son towards meeting your household expenses will be treated as a gift to you. The amount of gift received from your son is not taxable under the provisions of the Income-tax Act 1961 (the Act). Further, there are no gift tax implications as presently no gift tax is levied in India.

I am living in a rented accommodation and paying Rs 7,400 rent per month. My landlord also shows this income in his IT return. As per my employer, since they don't give HRA, they can't include it in my savings. Is the employer right or is there any other way to do so?

— Vijay Thakur

The facts in the query indicate that you are not in receipt of house rent allowance and are being paid a consolidated salary. It is on account of this reason that the employer is not reflecting the amount of house rent allowance in form 16A which is required to be issued to you by the employer. In such a case, you can claim deduction of rent paid if you comply with the following conditions:

• The rent paid is in excess of 10% of your total income before allowing any deduction under this section;
• The rent paid is in respect of accommodation occupied for the purposes of your own residence and a declaration in form No. 10BA is filed for availing such deduction.
• The deduction can be claimed only in cases where any residential accommodation is not owned by the assessee or by his spouse or minor child or by Hindu Undivided Family of which he is a member.

However, the deduction in respect of rent paid will be denied only where the assessee, his spouse or minor child or the Hindu Undivided Family of which he is a member, owns any residential accommodation at the place where the assessee resides or performs the duties of his office or employment or carries on his business or profession.

• The allowable deduction is limited to 25% of the total income or Rs 2,000 per month, whichever is less.

I am an NRI and considering purchasing a house in Gurgaon. I am aware that there are tax breaks available for Indian residents, but I want to know is there any similar scheme available for NRIs (I hold Indian passport)? I will finance part of my purchase through home loan from an Indian bank, what do I need to do in order to qualify for tax breaks, if available? — Ramesh Talwar

The following major tax incentives are available in respect of a house property purchased/constructed in India:

• In computing the total income of an individual, for an assessment year a deduction of a sum not exceeding Rs 1.50 lakh is allowable in respect of the repayment of amount borrowed by the assessee from a bank or other specified entity for the purposes of construction/purchase of a house.
• Interest paid on amount borrowed for the construction or acquisition of a house property is allowed as a deduction against income from house property. Such deduction in ordinary course is limited to Rs 30,000 in case of a self-occupied house. However, a higher deduction of Rs 2,00,000 in case of a self-occupied house is allowed if the amount is borrowed after April 1, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which the amount was borrowed. The above limit is not applicable if the house is let out.
• The house tax paid in respect of the property is allowed as a deduction from the annual letting value.
• A statutory deduction of 30% of the annual letting value arrived at after the deduction of house tax paid is allowed to cover expenses in respect of the maintenance of the house and collection charges etc.

You will have to file your tax return in India declaring your total income, including income arising from the house property, so as to claim such deductions. The return can be filed online.

Festivals are round the corner…Navratri, Durga Puja, Dussehra, Dhanteras, Diwali, Christmas and New Year...what could have been better if they knock at the door of your own home? This will surely enhance festivities in your life this season.

Particularly, if you have been planning to buy your dream home for very long and you are unable to do that as you are unsure about whether you will get the right amount of loan from right type of lender and are not able to strike good bargain.

First and foremost, finalise the property you wish to buy so that you have clarity to take it forward with your prospective lender. Before reaching out to lender, it is important that you take out time to compare home loan interest rates offered across various banks and housing finance companies. Price comparison engine which are unbiased in their approach are great help here.

Coming back to loans, for the uninitiated, home loans in India are provided by the lenders up to a maximum of 80% (90% for loan amount below Rs 20 lakh) of the agreement value of the house if you are buying a new apartment. Balance 10- 20% amount you have to arrange yourself for making the down payment. Also note that banks do not consider other charges like stamp duty, registration charges, etc. while considering the home loan amount eligibility. Hence, home loan is no longer on property value, it is on agreement value.

In case of home loan for resale of flats, most lenders get the property valued independently and banks will provide the housing loan based on their value rather than the cost mentioned in the purchase agreement.

Frequently, the valuation as determined by the banker's valuer for the purpose of home loan is significantly lower than the actual cost and hence the requirement of the borrowers for down payment for the loan goes up.

Home loans are repaid through monthly instalments (EMIs) spread over up to 20 years. Some of the banks provide housing loans even for a tenure extending up to 25-30 years. The maximum tenure of any loan and home loan specifically is also restricted by the borrower's retirement age at the end of the tenure so as to ensure that the loan gets fully paid by or before the retirement age.

Home loan in India can primarily be classified into two categories on the basis of interest rates i.e. fixed rate and floating rate of interest. Now there are few lenders in India who offer pure fixed rates where the rate of interest remains constant for the entire tenure of the home loan while most lenders govern by money market clause. In floating home loan type, the rate of interest on such loans is subject to change whenever there are changes in the repo rates announced by the RBI or any changes in base rate of the bank. Borrower should opt for fixed interest rates only if she/he is certain that the rate of interest is the lowest in the interest cycle. And they are looking for certainty of EMI for a long tenure.

A part of this EMI goes towards repaying the principal component of the loan and the other part goes towards paying the interest. The EMI is calculated on a reducing balance basis. A reducing balance home loan means that in the initial days of the loan, the interest component of the EMI is high as the loan amount is high. But gradually, when the principal amount starts becoming lesser and lesser as you keep on paying it through EMI, the interest component of the EMI goes down and the principal component increases.

The author is Chief Editor, Apna Paisa. The views expressed in this article are his own