What would be the best time to borrow i.e. now to meet the April/ May 1999 installment or later after we have invested our share of purchase component of Rs 34.50 lakh.

Do we need to specify our respective share of ownership in the proposed apartment. If so, what should be the breakup assuming that my wife would be contributing the residual personal inflow of Rs 2 lakh and also borrowing 50 per cent of the amount in her own name.

What would be the status of tax deduction on interest paid by us to Hudco if the delivery of the apartment is delayed beyond March 2001. Will it also mean that we shall become subject to capital gains tax. At present, we have invested the funds in a capital gains account scheme with a nationalised bank whereour deposit is earning an interest of 12.50 per cent on quarterly compounded basis.

--Virendra Pratap Singh, NEW DELHI

To enable you and your wife to avail of full deduction on account of interest paid by you to Hudco in your personal capacities as tax payers to the extent of Rs 75,000 per annum, it is necessary that the amount borrowed for the acquisition of a self-occupied house should have been availed after first day of April 1999 and the construction of the house be completed before first day of April, 2001. Normally, term-lending institution would insist that the borrowers bring in their share of investment first and then resort to use of borrowed funds. Under the circumstances, you will have to invest your share of Rs 34.50 lakh prior to utilisation of borrowed funds.

It is always cheaper to use your own funds even if no tax benefits/ rebates accrue to you for the time being. While loss of income on your own funds currently invested at 12.50 per cent post-tax is 8.375 per cent, the bare cost ofborrowed funds at 14.50 per cent on post-tax rebate availment basis would be 9.715 per cent. Furthermore, you would not be able to avail the tax deductions applicable to self-occupied properties for the duration that the property is under construction and the possession of the same has not been handed over to you. As per the subsisting law, any interest paid on borrowed capital during the construction period can be set off in five equal annual installments beginning with the financial year following the financial year in which construction has been completed.

If the construction of your apartment is delayed by the builder beyond March 31, 2001, then you would be entitled to claim tax deduction on interest paid by you on borrowed funds to the extent of Rs 30,000 only and not Rs 75,000 even though the entire loan amount may have been drawn by you and disbursed to the builder.

As per the provisions of the subsisting capital gains tax law, you should have invested the entire component of long-term capitalgains accruing to you from the sale of a property in the purchase of a ready built dwelling unit or the construction of a new property within two and three financial years, respectively, following the financial year in which the sale of the property to which the capital gain pertains has taken place. This, in your case, means investments prior to March 31, 2002. It is to be noted that the provision here pertains to investment and not completion of construction/ possession. It is, however, necessary that the entire quantum of capital gains is placed in a special account to be established with a nationalised bank prior to the filing of your income-tax returns pertaining to the year in which the transfer of property has taken place. In case you have not already done so, please ensure that the funds are placed in a separate account before Jun 30, 1999.

Once the apartment transaction is completed, you may draw up an internal agreement between yourself and your wife on stamp paper specifying the quantum ofinvestment made by each party in the proposed apartment in Qutab Enclave. This agreement should be notarised or preferably registered and a copy of the same be filed along with your respective income-tax returns to establish your respective claims to apartment ownership and the consequent tax benefits flowing thereof.

You could either apply jointly or individually to Hudco for sanctioning a loan of Rs 10.50 lakh as co-borrowers with equal liability for repayment of equated monthly loan installments. Care should also be taken to ensure that the loan repayment cheques issued by you are from your individual accounts month after month.

I had booked to purchase an apartment in DLF Qutab Enclave Phase - I, Gurgaon, from the builder-developer for an aggregate purchase consideration of Rs 20 lakh in 1997 with partial financing through a loan of Rs 10 lakh from Citibank under their Citihome scheme carrying an interest at 17 per cent per annum calculated on annual rests in advance for each year of borrowing. I haveaccordingly been paying Citibank's equated monthly payment installments for the past two years and payments for yet another 120 months have still to be made. Meanwhile, the interest rates have continued to decline but Citibank has not shown any inclination to revise the EMI. I have, therefore, been wondering whether it would be possible for me to borrow from another agency against the security of the same house at a lower rate of interest and repay Citibank and in the process reduce my burden of EMI payments. Incidentally, the apartment booked by me with DLF is yet to be delivered and as per current indications, the deliveries would commence in the last quarter of 1999.

Please also confirm that since the switch loan would be a new loan that I will be entitled to, deduction for the purposes of income-tax of interest payments effected by me on a year to year basis to the extent of Rs 75,000 instead of Rs 30,000 at present.

--J Kapoor, AHMEDABAD

To the best of my knowledge, you have entered into atripartite loan agreement with Citibank and DLF in which Citibank is paying the loan amount on your behalf to DLF as and when the installments fall due. Under the circumstances, any change in the borrowing arrangement by you would also require the concurrence of the builder-developer i.e DLF.

You also need to check whether there is any loan pre-payment liability in the event you decide to pre-pay the Citibank loan. This cost, if applicable, should be quantified by you and taken into account before embarking upon a loan-switch exercise. At the face of it, considering that you would be able to borrow at 14.5 per cent from Hudco/ HDFC and GIC-HF plus a host of other housing finance companies, as opposed to 17 per cent that you are paying at present, the savings despite the existence of any pre-payment liability of Citibank could be substantial, particularly when you factor in the enhanced deduction from your taxable income that would be available to you in respect of interest paid on a new loan to the extentof Rs 75,000 per annum for the next 10 years. This seems particularly worthwhile in your case provided you indeed receive possession of your apartment well within the deadline date of March 31, 2001, as stipulated in the Finance Act 1999.