" So you think you dont need an insurance?"...... "Think again"

General argument of an individual who thinks he has ample wealth stashed away for his family after he is gone: "I don't have to worry about life insurance"

Seems right. But the logic is pretty flawed.

This reminds me of an Insurance ad on TV some time back which starts with: " So you think you dont need an insurance?"...... and ends with "Think again"

"What do I need Insurance for?" - if this is the question lingering in your mind...then read on to get the answer:

Let's say you have worked out that your spouse and two children will need a kitty of Rs 10 million to maintain their current lifestyle and pay for huge one-time expenses like marriage and education. You total your assets and you are pleased: your home, bank deposits, stocks, gold are worth more than that.

Dont stop here, assume the worst.

Agreed you are in a great health today, but catastrophes do happen!

You fall really ill and have to undergo the treatment (that cannot be done in India) somewhere abroad. Now the treatment there costs a hell lot of a money.

Now you are neither a NETA nor a corporate chieftain, neither the government nor the company will pick up the tab.

But you dont have to worry - you have the assets - encash and get yourself treated....

By the time you recover, the kitty has substantially reduced in value.

Granted, these are extreme scenarios. Let's hope neither happens to you. But do you see the point?

As long as you are around, the possibility of spending a substantial portion of your wealth on health-related reasons also exists. You cannot wish it away. In such cases, you will have to tap into your wealth. Which means, when you are no longer around, your family does not have the kind of financial security you planned for them.

Lesson to be learnt: You might be rich, but you still need to be protected against calamities and catastrophes.

Assume you do have enough wealth to take care of any eventuality, including an expensive medical treatment abroad. Even if a sizeable chunk of the money is taken away, there will still be enough for the family. The crucial question is: what is your wealth made of?

Most wealthy families have no dearth of assets for the survivors. But it takes a long time to unlock the wealth out of the assets. For example, if real estate property, like a mansion or an apartment at a prime location, constitutes most of the wealth, it might take months (if not years) to sell it and collect the cash. If you live in an expensive apartment or house, it may not be possible for your family to sell it and relocate. Ever. What if a huge portion is locked up in the share market and the market is totally bearish (which means the price of the shares have fallen) when your family needs the money? If they sell, they incur a huge loss. They are stuck. What if you have included your jewellery under your assets? Would your family be eager to sell? Don't confuse wealth with high income. The two are different. You could be a high earner but you could be spending just as much and, as a result, your savings could be quite low. This might also mean your family demands a lot of money which makes it all the more necessary that you have life insurance. Lesson to be learnt: If your wealth is in the form of assets, your family may not be able translate it into cash when they need it. Remember, the only people who can ignore life insurance are the super rich. And if you need a monthly income, howsoever high, you cannot be classified as super rich. Remember the saying, 'If you can count what you own, you are not wealthy'. Only if you are in the same league as Bill Gates, Azim Premji or Tiger Woods, can you afford to ignore life insurance.

" So you think you dont need an insurance?".................."Think again"

Rules of tax rebate on home loans

Tax benefits are available on home loans. They can be claimed on bsoth the principal and interest components of a home loan as per the Income Tax Act These deductions are available to assessees who have taken a loan to either buy or build a house, under Section 24(b).

Interest on borrowed capital is deductible as:

If these conditions are satisfied, interest on borrowed capital is deductible up to Rs 1.5 lakhs:

l. Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property

2. The acquisition / construction should be completed within three years from the end of the financial year in which capital was borrowed

3. The lender certifies interest payable on amount advanced for acquisition or construction of the house, or as refinance for the principle amount outstanding under an earlier loan taken for such acquisition or construction

If the conditions stated above are not satisfied, the interest on borrowed capital is deductible up to Rs 30,000. However, for that, these conditions have to be fulfilled:

4. Capital should be borrowed before April 1, 1999 for purchase, construction, reconstruction, or repairs of a house

5. The capital is borrowed on or after April 1, 1999, and construction is not completed within three years from the end of the year in which capital is borrowed.

In addition to the above, principal repayment of the loan/capital borrowed is eligible for a deduction of up to Rs 1 lakh under Section 80C from assessment year 2006-07.

The maximum deduction permissible in a financial year for the original loan (if any) plus for any additional loans taken is Rs 1.5 lakhs. Hence, if a borrower's deductions on an existing loan are less than Rs 1.5 lakhs, he can claim further benefits from the additional loan taken, subject to an upper limit of Rs 1.5 lakhs for a financial year.

It is to be noted that the tax benefits under Section 24 and deduction under Section 80C of the Income Tax Act can be claimed only when the payment is made. If a person fails to make EMI payments, he cannot claim tax benefits for them.

Who is eligible for rebate?

According to the Income Tax Act, only the person who has taken the loan can claim tax rebates. A husband and wife, both of whom are taxpayers with independent income sources, can get tax deduction benefits, with respect to the same housing loan. In this case, the tax benefits can be shared to the extent of the amount of loan taken in their respective names. If it is proved that the home loan is simply an arrangement between the loan-seeker and the builder or with a third party for the purpose of claiming tax benefits, they will not be allowed and benefits previously claimed will be clubbed to the income and taxed accordingly.

Capital gains tax-

If a person buys a house and sells it within the same year/after three years, and if any profit is made, then a capital gains tax liability arises. For example, if X purchases a house for Rs 25 lakhs by taking a loan and he sells it in the same year for Rs 35 lakhs, he makes a profit of Rs 10 lakhs. On this profit, he will be liable to pay short-term capital gains tax since the sale took place in the same year.

But, if the sale had taken place after three years, a long-term capital gains tax liability would have arisen. The long-term capital gains will be exempt from tax if the profit amount (after factoring in the indexation benefits) is invested in capital gains tax saving bonds or in a house as specified under Section 54.

How to calculate HRA for Tax Exemption?

Most of us pay more tax by neglecting to know about House Rent Allowance(HRA) component in our payslip.

What is HRA?

HRA is house rent allowance offered by employers to all its employees. HRA is exempted from taxable income and hence reduces the tax paid by an employee.

How HRA is calculated?

The HRA calculated by the employer is the minimum of the following three amount.

1. Actual HRA given by the employer as mentioned in the payslip.

2. Acutal rent paid by employee minus(-) 10% of his/her basic salary

3. 50% of basic salary in metro cities(delhi,mumbai,chennai,calcutta) or 40% of basic salary in other cities.

Lets take an example.Ram lives in a house in Bangalore and pays a rent of 7,000. The HRA offered by his employee is 6000/month and his basic salary is 20,000/month. Let us calculate the three amount stated above

1. HRA offered = 6,000

2. Rent - 10% of basic = 7,000 - 10% of 20,000 = 5,000

3. 40% of basic salary = 40% of 20,000 = 8,000

Hence minimum of the three , 5,000 is taken as HRA and 12*5,000 = 60,000 is exempted from tax for the current financial year.

Note : You have to pay monthly rent receipts to your employer and you can not have short routes in stating wrong rents paid by you.