The previous post on capital gains mentions two ways of taxation for various asset classes- 10 % without indexation, and 20 % with indexation. What exactly is indexation, why is it required, and how to arrive at the indexed value? Let us find out –
“ The hardest thing to understand in the world is income tax”
These are the words of Albert Einstein, the world famous scientist and nobel prize holder. When one hears the term “tax”, one tends to visualize himself or herself going through pages and pages of complex calculations J. Of all the different type of taxes, today we will understand one of the complex ones-the capital gains tax. This is especially important, as the capital gains incurred on different assets like equity, gold, debt, property- all are taxed differently.
Real estate investments are known for their il liquid nature- one of their biggest drawbacks. So, while owning a house is a basic need, this basic need takes up a huge chunk of one’s lifetime savings. Consider a scenario where during your retirement years, your house is your only big asset- built during your working years by saving regularly, taking a loan, cutting costs and later repaying it in instalments. Now, you do not have a regular income, and the constantly rising cost of living is making it difficult to survive on the meager pension. So, it there a way your biggest asset- your house can be of help?
Yes. There is. Thanks to the concept of reverse mortgage.
Shreya took a 20 year home loan of Rs 50 lakhs 3 years back at a fixed interest rate of 10.5 %. Now, in the current falling interest scenario, most banks are offering loans at the rate of 9.00 % – 9.5 % p.a. Since the amount of loan is sizeable and she still has 17 years to go, she wants to explore if it makes sense to switch over to another loan provider and take advantage of the low interest rates. But, moving a loan is a time consuming and a cumbersome process, and there is a cost involved too. These are some things which people like her should know and evaluate before taking a decision to shift.
Budget 2012 introduced RGESS ( Rajiv Gandhi Equity Saving Scheme ), a scheme which allows tax rebate/tax deduction for investment in specified equity schemes. Since there already exists another similarly structured scheme called the ELSS ( Equity Linked Saving Scheme ) under which an investor can claim tax rebate u/s 80C up to Rs. 1 Lakh, it is important to understand the differences between the two.