A user-friendly reference page for detailed explanations and meanings of commonly sought real estate information.

Income Tax Rules

An overview of Income Tax Rules pertaining to properties is as under:

(FORM 37 I): When buying a property that costs over Rs. 25,00,000, the Income Tax Act requires you to inform the Income Tax department, along with all the details of the flat you are buying. There is a prescribed form for this. The Income Tax Department has the right to purchase the flat at the same price as you have agreed to buy the flat instead of you and auction the flat in the open market. The idea behind this section of the Income Tax Act is that if the Income Authorities feel that the property has been sold below the market value then the Income Tax Department will acquire the property and sell it at the fair market value. The objective of this chapter is to try and cut out the black money transactions from property transactions. [Rule-48(K)].

SECTION 24 (2): Interest Deductions - The budget presented by the Finance Minister in 1999 has increased the ceiling on the amount of deductions from Rs. 30,000/- up to Rs.75,000/- from an individual's income if it is self-occupied for the interest paid for a home loan.

SECTION 54 F: The income tax act gives a person who does not own a residential house a concession to purchase one when they sell a capital asset. If you sell a capital asset, normally, you are required to pay tax on the gain in the value of the asset after indexation of the cost. If however you do not own a residential house, you can reinvest the net consideration you received from the sale of the capital asset in a house property and not pay any income tax on the gain from the sale of the capital asset. There is however a time frame of within which to reinvest the funds from the gain of the sale of the capital asset.

SECTION 230 A: Any seller of house property is required to produce an Income Tax Clearance Certificate u/s 230 (1) before the registration authorities. This is required at the time of registration of the document. This certificate is issued to show that the seller is not in default of any taxes.

SECTION 54: Reinvestment of House Property - An individual or HUF reinvesting the net proceeds from the sale of a house in another residential house is exempted from Capital Gains Tax u/s 54, provided the new house is purchased within 2 years after or one year prior to the date of transaction.

SECTION 139 (1) : All persons whose income is below taxable limits in occupation of immovable property exceeding 800 sq.ft. Residential Property or 125 sq.ft. Commercial Property are required to file Form 2(C ) with the income tax (for Pune city).

SECTION 88: Repayment of the principal of a home loan up to Rs. 10,000/- is eligible for deduction under Section 88 whereby 20% (i.e.Rs.2000) can be deducted from the total amount of tax payable.

The Final Document : Form 37-I

Ready reckoner for property values at which Form 37-I is required:

Registration

Q. What should the parties do if the Registrar refuses to register the document/s?

Ans. On refusal of the document by the Registrar the parties or their representative/s u/s. 72 & 73 of the Indian Registration Act, 1908 can within 30 days from the date of order or refusal institute proceedings in the Civil Court in whose jurisdiction the office of the Registrar is situated.

Q. Is it advisable to register the document/s at the time of purchase of immovable property?

Ans. Yes, it is always advisable to register the document/s at the time of purchase of immovable property. In some cases it is compulsory to register the document/s. Even in cases where it is not compulsory to register the document/s but then also registration of document/s is strongly recommended because:-

(1) The title gets additionally secured;

(2) If you propose to obtain a loan in future then at that time banks or financial institutions might insist for registration of documents/s;

(3) Even if you propose to register the document/s in future there is a possibility that the seller may not co-operate with you;

(4) The certified true copy of the document/s can be obtained from the registering authorities after completion of index and at any point of time and even if you loose the document/s you can still establish your bonafide to the property.

Q. At the time of registration should the area in the agreement be mentioned as carpet area, built-up area of super built-up area?

Ans. The Registering Authorities insist that the area must be mentioned a built up area. If the vendor has mentioned the area as carpet area then the registering authorities compel the persons to mention the area on built-up basis on the rubber stamp which is affixed by them at the time of registration of The information insisted upon by the registering authorities before registering the document/s is as under:-

(a) Number Of Floors, (b) Built-up Area, (c) City Survey No. (for the city of Mumbai) C.S.No. (for suburbs in Mumbai) (d) Ward, (e) Village & (f) Taluka.

Before You Buy

1. The Title Report

colloquially known as the ‘property card’ or in some places ‘saat-bara’, this is an investigation into the title of the land over a period of 30 years. It ensures the marketability of the land in the hands of the original owner. Ask for the detailed report, not merely an abbreviated certificate. This should be prepared for the Seller by his lawyer & should be checked by your lawyer. If the title is not clear you can be evicted from the property at a later date.

2. Property under construction

If you are buying a new house, ask for an Allotment Letter or Development Agreement detailing the agreed price, payment & construction schedule, house plans, delivery date & builder’s liability in case of late completion or problems after possession. Make sure that the developer has clear title to the land, & that the relevant local authorities have approved the building plans. Once construction is over, ask for the completion & occupation certificates, which indicate that the building has adhered to municipal requirements. Some other costs you will incur: Society formation charge, transfer charge, deposit for electricity meter, charge for registration of agreement.

3. Constructed property

Make sure that the seller has the title & possession of the property as well as the right to transfer the property. Check that the relevant approvals, if any, have been obtained from the land development/planning authority & the Income tax department. Ensure that there are no tenants & get a declaration that the property was purchased from the seller’s funds & is not mortgaged. Place a notice in the newspapers about the proposed purchase. Get a No Objection Certificate from the builder or society. Check that dues such as property tax, society, water & electricity bills etc. have been paid in full. Decide who will pay society transfer charges. Take possession of all relevant documents & also the original allotment letter, completion certificate, occupation certificate and all other documents given by the original builder.

37-I Provision And Other Procedures

Formalities in Purchase of Property

Purchase of immovable property in India involves many aspects besides provisions of Foreign Exchange Regulations Act, 1973, stepwise discussion of various formalities involved for purchase of immovable property is given below:

Valuation

It is an important aspect to arrive at a bargain while deciding to purchase an immovable property. Besides making own assessment from the market, assistance of Government approved valuers may also be sought. A comprehensive valuation report indicating value of each of major assets and also the basis and manner of valuation must be obtained from approved valuer against payment of his fee. Reputed approved valuers have set up their offices in all the important cities in India. In case of plantation, valuation report may also be obtained from recognised private valuers.

Verification of the Title of the vendor

This is the most important aspect of a purchase transaction of an immovable property and may be competently handled by a reputed lawyer/solicitor/chartered accountant etc. The verification is necessary from following two angles:

i) Validity of Title: The Vendor must have a clear, valid and marketable title over the immovable property which is the subject matter of transaction. This would require a close scrutiny of documents of title produced by the Vendor. The document must be a registered document.

ii) Obtaining of Non-encumbrances certificate.

3. EXECUTIVE OF "AGREEMENT TO SELL": An "Agreement to sell" may be executed once the contract for purchase of immovable property has been finalised. Besides that, value of the property, the "Agreement to Sell" must provide about the payment of transfer fees, stamp duty and registration fee which differs from state to state and is quite substantial. This may either be payable by vendor or the Buyer or may be shared equally by the two as per the agreement. The final sale would however, be subject to buyer obtaining permission from Reserve Bank, where necessary, and seller obtaining permission of competent authority under Urban Land (Ceiling & Regulation) Act, 1976 where necessary. The 'Agreement to sell' does not require compulsory registration even if it contains recital of the payment of a part or whole of the purchase money.

Permissions under Urban Land (Ceiling & Regulations) Act, 1976:

A ceiling on holding of urban vacant land has been imposed under the above Act. The limit depends upon the category of urban agglomeration and between five hundred square meters to two thousand square meters. The limit in cities like Delhi, Mumbai, Calcutta & Madras is 500 square meters. Section 26 of Urban Land (Ceiling & Regulations) Act 1976 requires a notice to be given to the competent authority as prescribed under the Act before transfer of any land within the ceiling limit by way of sale, gift, mortgage or lease. The competent authority may exercise an option to purchase the land for the Government and the sale can be effected only if no such option is exercised within 60 days from the receipt of notice.

The BJP government in its maiden Budget by the Finance Minister Yashwant Sinha has been proposed to swap the entire Urban Land (Ceiling & Regulation) Act, 1976. There has been a lot of debate both pro and against and the issue is not settled till date and therefore only time will till as to whether the urban land (ceiling & Regulation) Act, 1976 will be repeated or continued.

5. INCOME - TAX FORMALITIES:
In terms of section 230 A, a document of transfer of immovable property valued at more than Rs.5 Lacs cannot be registered unless a certificate is obtained from the Assessing Officer in respect of payment or satisfactory arrangement of tax liability of transferor. An application for this purpose should be made in duplicate inFormNo.34A to the Assessing Officer accompanied by a copy of the document, which is to be registered. The Income Tax certificate is granted or refused within 60 days of the receipt of the application. The application is to be made by the intending transferor to the Assessing Officer having jurisdiction over him irrespective of the location of property or whether the transferee falls under different jurisdiction. This may be noted that certificate U/S 230-A of Income tax Act is not required for Registration of Agreement for sale but required for registration of Agreement of Sale i.e. conveyance.

Courtesy : Mr.Vimal C. Punmiya

501 Niranjan, 99 Marine Drive, Mumbai 400002

Housing Finance Page

What are the types of Home Loans available?

There are a variety of home loans available in India, offered by various financial institutions like Banks and Housing Finance Companies. They are :-
1) Home Purchase Loan
2) Existing Home Improvement Loan
3) Home Construction Loan
4) Home Extension Loans
5) Home Conversion Loans
6) Land Purchase Loans
7) Bridge Loans
8) Balance Transfer Loans
9) Refinance Loans
10) Stamp Duty Loans
11) Loans to NRIs

Home Purchase Loans: This is the basic home loan for the purchase of a new home.

Home Improvement Loans: These loan are given for implementing repair works and renovations in a home that has already been purchased by you.

Home Construction Loans: These loan is available for the construction of a new home.

Home Extension Loans: Are given for expanding or extending an existing home. For example addition of an extra room, etc.

Home Conversion Loans: Are available for those who have financed the present home with a Home Loan and wish to purchase and move to another home for which some extra funds are required. Through a Home Conversion Loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need for pre-payment of the previous loan.

Land Purchase Loans: These loan is available for purchase of land for both home construction or investment purposes.

Bridge Loans: Bridge Loans are designed for people who wish to sell the existing home and purchase another. The bridge loans helps finance the new home, until a buyer is found for the old home.

Balance Transfer: Balance Transfer loans help you to pay off an existing home loan and avail the option of a loan with a lower rate of interest.

Refinance Loans: These loan helps you pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present home.

Stamp Duty Loans: These loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.

Loans To NRIs: Are tailored for the requirements of NRIs wishing to build or buy a home in India.

EMI

EMIis the Equated Monthly Installment payable till the loan is paid back in full. It consists of a portion of the interest as well as the principal.

Some of the Incentives Offered Lending Institutions

a) Some companies sanction the loan without requiring you to identify property as a prerequisite for eligibility.

b) Free accident insurance

c) Discounts

d) Waiving of pre payment penalty

e) Waiving of processing fee

f) Free property insurance

Handy Tips On Home Loans

Rate of Interest:
Interest rates are different from institution to institution and generally range from about 12.5% to around 16%. The interest on home loans in India is usually calculated either on monthly reducing or yearly reducing balance.

Monthly reducing:
In this system the principal on which you pay interest reduces every month as you pay your EMI.

Annual reducing:

In this system the principal is reduced at the end of the year, thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender. Which means the EMI for the monthly reducing system is effectively lesser than the second system of calculating interest.

The best way to select the cheapest Home Loan is to keep the loan period constant and calculate the total amount paid for the home through the different loan options available.

What are the repayment period options?

Repayment period options range generally from 5 to 15 years.

What is fixed rate of interest?

Some institutions have a fixed rate of interest which means the rate of interest remains unchanged for the entire duration of the loan. This means you do not benefit, even if rates of interest drop in the market.

What is floating rate?

This is the rate of interest that fluctuates according to the market lending rate. This means you stand the risk of paying more than you budgeted for in case the lending rate goes up.

Other costs that usually accompany a Home Loan

Home loans are usually accompanied by the following extra costs:

How do HFCs decide what amount your loan should be?

Usually most companies give upto a maximum of 85% of the cost of the house. The other 15% sometimes called ‘seed money’ will have to be provided by a loan applicant. Out of the 85% the amount the applicant is eligible for, is decided by the age, income, no. of dependents, monthly outgo and repayment capacity. This varies from case to case.

Securities required:

In most cases the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some institutions may ask for additional security such as life insurance policies, FD receipts, share or savings certificates.

Guarantors:

Some institutions ask for 1 or 2 guarantors, others require no guarantors at all.

Applying for Loan

Loans may be applied for before or after selection of property. The loan amounts are sanctioned in principle to let buyers know what amounts they can avail of. This helps them decide their budgets and purchasing power. Actual disbursements are made after satisfactory verification of all necessary documents and completion of specific procedures.

Time required for loan application approval:

About 0-15 days

Time required for disbursement:

On an average, loans are disbursed within 3-15 days after satisfactory and complete documentation and completion of all relevant procedures, including proof that 15% of the cost has been paid up front to the seller of the property.

Joint applications:

Most institutions are willing to consider the joint incomes of the applicants for deciding the loan amounts. Some institutions do not require the co-applicants to be co-owners of the property to be purchased.

Documents Required at the time of Application

Both principal as well as interest attract tax benefits. Section 88 of the Income Tax Act allows a 20% rebate on the principal repaid, subject to a principal ceiling of Rs.10,000 per annum. For loans availed after April 1, 1999 a deduction on interest paid with a ceiling of Rs.75,000 is allowed. For loans availed before April 1999, a deduction on interest paid with a ceiling of Rs.30,000 is allowed.

Home loans taken to repay existing home loans are not eligible for tax benefit.

Procedure for Transfer of flats in co-operative societies.

Definitions

1. (a) A member, desiring to transfer his shares and interest in the capital/property of the society, shall give 15 days notice of his intention to do so to the Secretary of the Society in the prescribed form, along with the consent of the proposed transferee in the prescribed form.
2. (b) On receipt of such notice, the Secretary of the Society shall place the same before the meeting of the Committee, held next after the receipt of the notice, pointing out whether the member is prima-facie eligible to transfer his shares and interest in the capital/property of the society, in view of the Provisions of Section 29(2)(1) of the Act.
3. (c) In event of ineligibility of the member to transfer his shares and interest in the capital/property of the Society, the Committee shall direct the Secretary of the Society to inform the member accordingly within 3 days of the decision of the committee.
4. (d) If the Committee is satisfied that the member is prima facie eligible to transfer his/her shares and interest in the capital/property of the society, the Committee shall direct the Secretary of the Society to inform the member within 3 days of the decision of the Committee to make the compliance as under:
   1. To submit an application for transfer of his/her shares and interest in the capital/property of the society, in the prescribed form, along with the Share Certificate;
   2. To submit an application for membership of the proposed transferee in the prescribed form;
   3. To give valid reasons for the proposed transfer;
   4. To discharge all the liabilities of the society.
   5. To pay the transfer fee of Rs. 50/-.
   6. To remit entrance fee of Rs. 10/- payable by the proposed transferee;
   7. To pay the amount of premium at a rate to be fixed by the general body meeting not exceeding 2.5 percent of the difference between the book value of the flat and the price realised by the transfer, on transfer of his flat, or Rs. 25,000/- (Rupees Twenty-five Thousand Only) whichever is less. No additional amount by way of donation, etc will be taken unless it is paid voluntarily by the member
   8. To submit No Objection Certificate required under any law for the time being in force or order or sanction issued by the Government, any financing agency or any authority;
   9. To furnish the undertaking/declaration in compliance with the provisions of any law for the time being in force, in such form as is prescribed under these bye-laws.

   Note: The condition at Sr. No. (vii) above shall not apply to transfer of Shares and interest of the transferor in the capital/property of the Society to the member of his family or to his nominee or his/her legal representative.

   (a) The procedure for disposal of application for transfer of shares and/or interest of members in the capital/property of the Society as laid down under the model bye-laws No. 67 shall be followed by the Secretary and the Committee of the Society.

   (b) The managing committee or the General Body, as the case may be shall not refuse any application for admission to membership or transfer of shares and interest in the capital/property of the society except on the ground of non-compliance of the provisions of the Act, the Rules and the bye-laws of the society or any other law or order issued by the Government in exercise of the statutory powers vested in it.

   (c) If the decision of the Committee/General body meeting as the case may be, on the application for the transfer of shares and/or interest in the capital/property of the society is not communicated to the applicant within 3 months of its receipt, the transfer application shall be deemed to have been accepted and the transferee shall be deemed to have been admitted as a member of the society as provided under Section 22(2) of the Act.

   (d) Any transfer made in contravention of the Act, Rules or the bye-laws will be void and will not be effective against the society.

   The transferee shall be eligible to exercise the rights of membership on receipt of the letter in the prescribed form from the society.

   
   

   -By Vimal Punmiya, B. Com, L.L.B.(Gen), F.C.A.

   
   

    

   
   

   Minding The Tenants You Keep

   
   
   

   Property owners often worry that tenants will be like the camel that asked the Arab for shelter only to nudge him out of his tent by morning.
   With various state rent control laws yet to be amended in order to be more equitable for property owners, an extra dose of caution is called for before handing over the keys. In the light of innumerable instances of tenants' sub-letting premises, using the pugree system or going to court to take advantage of long-winded litigation procedures, here are some pointers to make sure that rent income does not insidiously change to cost. Here, the rules of the game partially depend on who the other side is - a company lessor or individual tenant.

   Vet the company. No point leasing to a company that is broke. Big names do not automatically imply a model tenant. Sniff around for a good track record of timely payments.

   Draw up a daunting contract. Wherever possible, set the security deposit at a third of the flat's cost and collect six months rent in advance. Include a clause, which quadruples rent if the company does not vacate once the contract ends.

   The company's nominee occupant should be named. If the employee quits during the lease period, the flat should revert promptly to the owner.

   Push for a copy of the occupant's employment contract, which specifies the contract period.

   The Company must give a corporate guarantee from its head office ensuring that the flat is handed over at the end of the lease. In case, the guarantee is not available take a letter of comfort from the concerned branch office, which will act as proof that the company has rented the house.

   Sound legalese in drawing up the contract is a must.

   Specify that subletting is prohibited irrespective of whether it is a company or individual lease.

   While big corporates may prefer a three-five year lease, residence owners usually prefer the relative safety of a leave-and-license agreement, which ensures periodic renewal of the terms. The eleven-month agreement is usually popular as these pre-empt the rent control laws, which apply after 12 months. Rent control laws, as said earlier, weigh in favor of tenants.

   Specify the notice period for either side.

   Property, where rent is over Rs3, 500 is subject to the Transfer of Property Act (TPA) and not the rent control laws of the various states and metros. The TPA comes under the civil court while the rent laws are heard by the Rent Controller at the district level. If you want to evict errant tenants the TPA is much better as it has a broad scope for eviction unlike the latter which sets out barely 12 causes.

   There is a silver lining yet for harried landlords. If passed, Delhi's pending Rent Control Bill would enable house owners to remove tenants who have stayed for over 10 years without paying market rates. Section 13A2 was introduced in the Bombay Rent Act a couple of years ago which allows the landlord to double the rent if the tenant does not vacate or is ruining the property. Its advocates also say that if the Urban Land Ceiling Regulation Act is abolished, landlords would be on firmer ground. There's still hope for all property owners!

   Courtesy: indiainfoline.com

    

   
   

   Investment in Immovable Property In India

   section 3.1 of FERA generally governs the matters relating to immovable properties and the work relating to permissions for purchase etc. of immovable properties is centralised in the Foreign Investment Division at Central Office of Reserve Bank of India at Mumbai.

   INVESTMENT IN IMMOVABLE PROPERTY BY INDIVIDUALS
   Foreign Citizen				Indian Citizen
   Indian Origin		Non-Indian Origin		Resident	Non-Resident
   Investment made from local funds	Investment made from foreign funds	Investment made from local funds	Investment made from foreign funds	No Approval is required under FERA	Investment made from local funds	Investment made from foreign funds
   Prior RBI permission required	Prior permission of RBI not required	Permission generally not given by RBI	Prior permission from RBI required	-	No approval necessary under FERA	Declaration in form IPI-7 necessary if repatriation facility required
   Application in form IPI-1	Declaration in form IPI-7	-	Application in form IPI-1	-	-	-
   No repatriation of sale proceeds	Repatriation of original investment allowed after 3 years on applying to RBI in form IPI-B	-	No repatriation of sale proceeds	-	-	Repatriation of original investment allowed on applying to RBI in form IPI-8

   
   

   Foreign Citizens (regardless of Residence)

   1. Of Indian Origin.
   2. Of Non-Indian Origin.
   3. 
      

   Foreign citizens of Indian origin

   For foreign citizens of Indian origin, different procedures have been laid down depending on :

   1. Whether they invest their money in the form of Foreign Currency remitted from abroad through normal banking channels or from funds withdrawn from the NRE/FCNR accounts, or
   2. From local funds in Rupees.
5. Of Indian Origin.
6. Of Non-Indian Origin.
7. 
   

Foreign citizens of Indian origin

For foreign citizens of Indian origin, different procedures have been laid down depending on :

1. Whether they invest their money in the form of Foreign Currency remitted from abroad through normal banking channels or from funds withdrawn from the NRE/FCNR accounts, or
2. From local funds in Rupees.

Courtesy : Mr.Vimal C. Punmiya

Frequently Asked Questions for Non-Resident Indians

1. Indian citizens who stays abroad for employment or carrying on business or vocation outside India or for any other purpose in circumstances indicating an indefinite period of stay abroad;

   OR

2. Government servants who are posted abroad on duty with the Indian missions and similar other agencies set up abroad by the Government of India where the officials draw their salaries out of Government resources;

OR

3. Government servants deputed abroad on assignments with foreign Governments or regional/international agencies like the World Bank, International Monetary Fund (IMF), World Health Organization (WHO), Economic and Social Commission for Asia and the Pacific (ESCAP)

OR

4. Officials of the State Government and Public Sector Undertakings deputed abroad on temporary assignments or posted to their branches or offices abroad.

1. Guidelines Issued by the Reserve Bank of India for grant of Housing Loans to NRIs.

The Reserve Bank of India (RBI) has issued certain guidelines for granting loans to Non-Resident Indians. The guidelines are:

The loan amount shall not exceed 85% of the cost of the dwelling unit.

Own contribution, which is the cost of dwelling unit financed less the loan amount, can be met from direct remittances from abroad only through normal banking channels, your Non-Resident (External) [NR (E)] Account and /or Non-Resident (Ordinary) [NR (O)] account and /or Non-Resident Special Rupee account [NRSR] in India.

Repayment of the loan, comprising of the principal and interest including all the charges are to be remitted from abroad only through normal banking channels, your Non-Resident (External) [NR (E)] Account and /or Non-Resident (Ordinary) [NR (O)] account and /or Non-Resident Special Rupee account [NRSR] in India.

2. For what purposes are loans available to NRIs?

NRIs can avail loan for buying or constructing a new home, extending or improving an existing home or even to buy a plot.

3. What is meant by "Own Contribution"? How can this "Own Contribution be paid"?

Own Contribution is the cost of the dwelling unit financed less the loan amount. The own contribution should be met from direct remittances from abroad through normal banking channels or from the Non-Resident (External) Account/Non-Resident (Ordinary) or the Non-Resident Special Rupee account in India.

4. What are the common documents to be submitted along with the application?

The following documents are required along with the application form:

Photocopy of the labour contract duly countersigned by your employer (translated to English for non-English documents).

Latest salary certificate (in English) specifying the following:

Name (as it appears in the passport).
Date of joining.
Passport Number.
Designation.
Perquisites and salary.
Photocopy of labour card/identity card.
Photocopy of valid resident visa stamped on the passport.
Photocopy of monthly statement of local bank account.
Property related documents.

5. What security will I have to provide?

Typically the security for the loan is first mortgage of the property to be financed, normally by way of deposit of title deeds and/or such other collateral security as may be necessary.

In addition interim security may be required, if the property is under construction. Collateral or interim security could be in the form of assignment of life insurance policies, surrender value of which is at least equal to the loan amount, pledge of shares and such other investments.

6. Can I give a Power of Attorney in favour of a person of my choice in India to complete loan formalities on my behalf?

Yes. Normally it is desirable to appoint a Power of Attorney in India to represent you in dealings in India. The Power of Attorney should be executed as per drafts provided by the housing finance company. The Power of Attorney can be given to any person of your choice in India.