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• Legal Advice
• Legal FAQs
• Taxation Advice
• Taxation FAQs

Q1.What documents are required while buying commercial or residential property?

A1.When buying commercial or residential property you would need to check for the following documents:
• Market Trends about prevalent rates of property in the vicinity and last known transactions.
• Identify the property you wish to purchase.
• Formulate commercial terms.
• Distinguish between terms and conditions of the contract which are negotiable and those which are fixed e.g. price, payment schedule, time of completion etc.
• Avail of services of magicbricks.com. List your requirements with a reputed broker.
• Ask for photocopies of the all deeds of title related to the property to be purchased. Examine the deeds to establish the ownership of the property by seller, preferably through an advocate. Ascertain the survey number, village and registration district of the property as these details are required for registration of the sale. Previous encumbrances and loans, if any, on the property must be cleared before completion of purchase of the property. The title of the Vendor to the property must be clear and marketable.
• Finalise commercial terms of purchase of the property. Ascertain transfer fees, stamp duty and registration charges to be paid on purchase of the property.
• Ascertain outgoings to be paid for the property i.e. property tax, water and electricity charges, society charges, maintenance charges.
• Request Vendor to obtain, if applicable, consent, permission, sanction, no objection certificate of various authorities such as the (a) society (b) the income tax authority (c) Municipal Corporation (d) the competent authority under the Urban Land Ceiling and Regulation Act (e) any other authority.
• Will you require a loan for making payment of the consideration amount. Ask for a pre-approval letter from the lending institution.
• Permanent Account Number of Vendor and Purchaser under Income Tax laws Payment of stamp duty on the formal agreement or document for transfer of the property, signing by both the Vendor and Purchaser and registration
• After payment of the entire sale price, take over legal possession of the property alongwith documents of title in original from the Vendor of the property
• Change name of the holder of the property to the purchaser in the records of the society, electricity company, municipal corporation, Index II etc.
 

Q2.What is Stamp Duty and who is liable to pay the Stamp Duty, the buyer or the seller?

A2.Stamp Duty is a tax, similar to sales tax and income tax collected by the government, and must be paid in full and on time. A stamp duty paid instrument/document is considered a proper and legal instrument/document.
The liability of paying stamp duty is that of the buyer unless there is an agreement to the contrary. Section 30 of Bombay Stamp Act, 1958 states the liability for payment of stamp duty.
 

Q3. What is meant by the market value of the property and is Stamp Duty payable on the market value of the property or on consideration as stated in the agreement?

A3. Market value means the price at which a property could be bought in the open market on the date of execution of such instrument. The Stamp Duty is payable on the agreement value of the property or the market value, whichever is higher.
 

Q4. Are there any formalities to be completed or forms to be filled on execution of the Sales Deed or document of transfer?

A4. Yes. The formalities and forms may vary from State to State depending on where the property is situated.
• Every State has its set forms under the Registration Rules that are required to be filled and filed along with and at the time of Registration of Sale Deed/Transfer Deed.
• Under the provisions of the Income Tax Act and Rules for a transaction of sale, it is now compulsory for the Purchaser and Seller to give their Permanent Account Number and in the event of either the Seller and/ or the Purchaser would be required to fill Form 60 of the Income-Tax Rules.
• In case of either the Purchaser or the Seller being a Non-Resident Indian, not assessed to tax in India, such a Party would be required to file Form 60 of the Income-Tax Rules.
 

Q5. What are the permission and papers that one should check with the builder when buying a flat in a building which is under construction?

A5. When you are buying a flat from a builder in a building under construction, you have to check the following things:
• Approved plan of the building along with the number of floors.
• Whether the floor that you are buying is approved.
• Whether the land on which the builder is building is his or he has undertaken an agreement with a landlord. If so, check the title of the land ownership with the help of an advocate.
• The building byelaws as applicable in that area and ensure that the builder is building without any violation of front setback, side setbacks, height, etc.
• Check if the specifications given in the agreement to sell of the sale brochure match on the ground or not?
• Whether urban land ceiling NOC (if applicable) has been obtained or not.
• NOC from water, electricity and lift authorities has been obtained.
 

Q6. Who is the appropriate authority for knowing the market value of the property?

A6. The Sub-Registrar of the area, in whose jurisdiction the property is located, is the appropriate authority for knowing the market value of the property.
 

Q7. Within what time period should an agreement/deed have to be registered?

A7. The property agreement should be registered with the Sub-registrar of assurances under the provisions of the Indian Registration Act within four months of the date of its execution.
 

Q8. What constitutes completion of the sale?

A8. The transfer of a flat is concluded when you have an sale deed/ agreement for sale coupled with actual possession. Generally, in all cases the entire amount is paid simultaneously with the handing over of physical possession and signing of the transfer documents.
 

Q9. What is meant by leasehold and freehold properties?

A9. Leasehold properties (plot/built-up) are those in which perpetual leasehold has been granted by the title paramount in favour of the lessee. In such properties, the title paramount, i.e. President of India acts through DDA, L&DO, Leasehold properties are not freely transferable. Depending upon the covenants of the lease deed, prior permission of the lessor (DDA/ L & DO) is required to transfer the property.
Freehold properties are those where title paramount has conveyed the property in favour of the purchaser by conveyance/sale deed with no restriction on the right of the holder of the property to further transfer the property. Record of ownership of the freehold property can be ascertained from the office of the sub-registrar. It can be transferred by registration of sale deed.
 

Q10. What formalities need to be completed by foreign citizens of Indian origin for purchasing residential immovable property in India under the general permission?

A10. They are required to file a declaration in for IPI and with the central office of Reserve Bank at Mumbai within 90 days from the date of purchase of immovable property or final payment of purchase consideration, along with a certified copy of the document evidencing the transaction and the bank certificate regarding the consideration paid.
 

Q1. "I have a property in Mumbai which is about 10 years old. Now I am selling it for 1.5 crore and I purchased it for 10 lakhs. What is the tax liability?"

A1. Congratulations on getting the profit on selling your real estate after holding it for 10 years. Please note that the computation of long-term capital gains will be computed based on the capital gains derived by you. To compute capital gains in the first phase, please calculate the Cost Inflation Index by reference to the year of purchase. For example, if the property was purchased during the financial year 1997-98 then the Cost Inflation Index of that year was 331 while the current Cost Inflation is 551.Approximately the Cost Inflation Index of Rs.10 lakhs for the financial year 1997-98 would work out to approximately Rs.17 lakhs. Now from the total sale price deduct the purchase price as increased by Cost Inflation Index. The net resultant figure will be long-term capital gains. On this amount income-tax @ 20% will be payable by you together with applicable surcharge and Education Cesses. You can save tax by investing upto Rs.50 lakhs in Capital Gains bonds and also by investing in another residential property.
 

Q2. "I have read a lot about saving a long term capital gain by investing in some residential property or saving bonds but what if I want to invest the money received after long term capital gain, in buying a commercial property, Will it be taxable or non-taxable? And if taxable then at what rate the tax would be deducted?"

A2. The money received by you in buying a commercial property will not bring any tax savings to you. Please remember that no amount of capital gains can be saved by making investment in commercial properties.
 

Q3. "a) I have a house and I am paying EMI of housing loan.
b) I receive rent from my tenants living in the same house.
Q1. Can the income from rental be setoff against the expenditure of interest paid for loan while calculating tax?
c) If I sell the house, then
Q2. Can the income from selling it be setoff against the expenditure of interest paid for loan while calculating tax?
Q3. What other related expenditures can be setoff against the income from rent?"

A3. You can receive rent even from the property taken by housing loan. The deduction in respect of the interest or loan would be allowed to you even if the property is given on rent. There is no upper limit for calculating the deduction on account of loan for property given on rent. When you sell the house the interest on loan taken cannot be deducted from the amount of capital gains because you have already claimed deduction in respect of the said interest loan. If, however, the interest was not claimed as deduction then it was possible for you to claim deduction of the interest for adding it to the cost of your property. While computing the rental income you will get deduction for actual house tax paid by you. You will also enjoy deduction upto 30% of the annual value for repair & collection charges etc.
 

Q4. "My father has a property in South Delhi. He has four sons. He wants to sell it and divide it into 5 parts -4 parts for each of his son so that they can buy a property and he wants to keep 1 part for himself. What is the way to avoid the income tax?"

A4. The best situation on the facts stated by you is to gift the property. Hence, your father should gift 1/4th of his property to each of the sons. This is the best mode of achieving the desired results. There will be no liability to gift tax.
 

Q5. "I am an NRI, holding a property in Bangalore since 1 Year which was bought out of foreign remittances. I now would like to sell it and buy another property immediately with that money. Would there be relief for me in terms of Capital Gains? If I am not exempt from Capital gains, then what is the current rate of taxation? Also how do I park the funds after selling the property? Is there any special account for it?"

A5. The profit derived by you by selling the property purchased by you just a year ago would be treated as short-term capital gains. On this amount income-tax would be payable by you at the normal slab rate of income-tax.
 

Q6. "As a consumer, I have a query on service tax pertaining to housing. I had booked a flat in an apartment complex in Chennai (consisting 110 flats) on December 22, 2004. By February 2005, I had paid 90% of the amount based on construction progress as per builder’s statement. The Service Tax on housing was introduced only in June 2005. Is the builder right in demanding service tax on the entire cost of the flat, or should I pay service tax only on my balance amount, after the period when the tax was introduced?"

A6. For clarification on Service Tax matters the best option would be to go and meet the Public Relations Officer attached with the Office of Service Tax Department.
 

Q7. "Mr.X booked a flat on April 2006. Booking amount is Rs.1900sqft. Builder is to give Mr. X a letter of intent. Mr. X already paid Rs.20 Lakhs to the builder via cheque within the period of April 06 to Aug 2007. (Without any agreement between the Builder and Mr. X)
Mr. X wants to sell his flat to Mr. Y on the amount of Rs.3400 Sqft. (Excluding Transfer Fee of Rs.300) Kindly advice in following situations:
a) At what rate should a builder and Mr. Y make the agreement?
b) Is builder canceling the booking of Mr. X?
c) On which amount will Mr. Y get a loan?
d) What is the amount payable to Mr. X by builder and Mr. Y?
e) Whether profit of Mr. X payable in Black or White?
f) If Mr. X profit is taxable then what is the source of saving the tax?"

A7. We are answering all questions pertaining only to property transactions conducted in white money. It will be unsafe to engage in black money transactions. Hence, you are advised always to consider the real estate transactions with white money only. In the first stage, let there be an Agreement or MOU between the buyer and the builder. This agreement between M/s X the buyer and the builder is of utmost importance. In the absence of this, it will not be possible to determine the correct purchase price of the flat because the builder may not agree at the price on which booking was made specially if there is no evidence of a total settled price. Now in the given transaction Mr. Y will make payment to Mr. X and thereafter Mr. X will retain the profit. This profit will be treated as short-term capital gains. No tax can be saved on short-term capital gains. It is also important that X and Y clearly define and discuss about the onus of liability pertaining to transfer fee. Who will bear the transfer fee amount payable to the builder, this issue should also be settled in advance.
 

Q8. "I would like to know more about the taxes, as I am going to purchase an apartment in Kerala."

A8. When you are going to purchase a new apartment, please make sure that the first most important point which requires to be answered is, what is the ultimate objective of buying a new apartment? Are you going to stay in the apartment or are you giving it on rent or are you buying the apartment just for appreciation and gain? If you answer these three questions, then surely you will come to know the best option available to you for buying the property in the name of a particular family member. It is also recommended that you should consider joint investment in the property by you in your name as well as in the name of your wife. In subsequent years you can save tax by this important concept. However, please do remember that if the wife is purchasing the property, then she should have adequate funds being available to her.

Q9. "1. An industrial gala in an industrial Estate named SAMHITA WAREHOUSING COMPLEX which is assessed and taxed for property tax. Earlier used as a godown and after some years renewed, furnished and started using for Office purposes, will it affect property tax liability? Will it be assessed as "OFFICE" in current year?
2. What are the property tax rates for Godown and Offices in commercial / industrial estate?
3. In a gala assessed as "GODOWN", some arrangements made to sit i.e. manager cabin, filing racks etc. will it be treated / assessed as "OFFICE"?"

A9. For enquiring property tax rates for godown and commercial/industrial estate, please contact the Municipal Corporation of your town. Each Municipal Corporation has got separate set of rules & regulations concerning levy of house tax for different uses of the property.
 

Q10. "I have a house of value of Rs. 2 crore in Gurgaon, built in 2005. I would like to sell it and buy another property worth Rs 1 crore in another city after a year or two. How can I save long term asset gain tax?"

A10. You can sell your house in Gurgaon and buy another property and save capital gains. But please do remember, that this would be possible only if you held the property for minimum 3 years. On the facts stated by you as the purchase of the property has been for less than 3 years, therefore if you sell the property you will only receive short-term capital gains which, however, will be fully taxable.

Q11. "I had booked a flat in Indiranagar, HAL 2nd stage in 2001 and moved in on 01.01.2003. Now I am planning to register the flat in my name i.e. after four and a half years of possession. Could you please help me out about the service tax implications? Recently I had read an article in Times of India that no service tax payable on flats in Karnataka."

A11. Regarding Service Tax matters concerning your real estate, please contact the Public Relations Officer of your area to get more update on the same. Apparently, it appears that on the facts stated by you there will be no liability of payment of Service Tax.
 

Q12. "I have booked an apartment in Brigade Metropolis at Bangalore and the builder has given the contract for construction to some other company. During this construction phase, Brigade has requested for Service tax and I have been paying service tax with every installment (by- monthly).
1) Is the request for service tax from Brigade legal? Isn't that the construction company (the contractor in this case) should be paying the service tax?
2) When do we pay the service tax, at the time of construction or at the time of registration?
3) Is there anyway to find out whether service tax being collected from buyers has been submitted to government treasury?” "

A12. The payment of Service Tax in your facts will depend upon the facts and circumstances of your transactions. Hence, it is suggested that you may please take a copy of your contract with the builder and the developer and meet the officials of the Service Tax Department in Bangalore.

Q13. "I sold shares of about Rs.20 lakhs, with which I intended to buy a property. But I couldn’t find anything good and within 6 months I put the money into a Capital Gains A/c where it remained for about 18 months. Then I broke the Capital Gains A/c to buy a property under construction in 2004.Three years have passed, and the flat is still not ready. I wish to sell that place and I intend to buy another flat within 6 months of the sale. I presume I will not pay any Capital Gains, but someone said that Magicbricks gives very good opinions."

A13. I presume you had sold the shares after holding it for more than one year in which case it would be long-term capital gains which presently are exempted. But if your matter pertains to the different years then please jot down the details of day wise schedule of investment in the property. To save tax by investing long-term capital gains on shares the property investment should have been completed within 3 years from the date of sale. Now please find out and calculate whether the new property which you have acquired is ready within 3 years from the date of sale. In case the same is not ready, then the benefit of long-term capital gains on selling the shares would be lost.
Please note that if the long-term capital gains is on account of listed securities on which STT paid then there would be no tax liability to capital gains and then it would be immaterial to invest or not to invest in property.
 

Q14. "I have bought a property in Kandiwali, got the stamp duty and registration done in the Month of July, but have not taken the possession of the same, can my builder/developer charge me the service tax? Since I have got it registered in July and the new circular was released on 23/08/07 by central government? If yes, then how much service tax I have to pay?"

A14. To get the latest update on Service Tax based on your property documents it is time for you now to visit your Service Tax Department in your town.

Q15. "We have taken a housing loan which was disbursed on 31/3/2005 and the EMI commenced from 1/5/2005. We are expecting to get possession of our flat around June / July 2008.Kindly let us know whether we will be eligible to get interest exemption upto Rs. 150000 per annum and if so from which year we can claim tax exemption. An early response will be highly appreciated."

A15. On the facts stated by you, you will not be able to get any tax benefit in respect of interest on housing loan and repayment of the housing loan during the financial year 2007-2008 particularly because of fact that you have not got possession of the property.

Q1. What are the taxation formalities I need to complete while purchasing a property?

A1. From the point of view of taxation no special formalities are required for completing while buying the property. However, proper Agreement to Sale etc. must be done and the ownership and the title should be verified to ensure that one does not have a problem at a later stage in respect of such property.
 

A2. Sale of residential accommodation may result in a short term capital gain/loss if sold within a period of 3 years or a long term capital gain/loss if sold after a period of 3 years from the date of acquisition (Section 29A, 42A and 47).
b) A short term capital gain/loss will be treated and taxed in the same manner as any other income/ loss.
c) Tax on long term capital gain can be avoided if the sale relates to a property other than one residential accommodation and reinvested in any residential property within a period of 1 year before or 2 years after the date of transfer (Section 54 F).
d) Long term capital gain can also be saved if only the capital gains (and not the total sale proceeds) is invested for a period of 3 years in specific Bonds of National Highways Authority of India or Rural Electrification Corporation Limited (Section 54 EC).
e) Determination of sale proceeds of a Property will be on the valuation adopted by the State Stamp Duty and Registration Authorities and not the amount mentioned in the Deed of Conveyance (Section 50C). This is intended to cover cases where part of the sale price is received by the seller in unaccounted cash.
f) In the absence of either freezing the capital gain in specified securities or reinvested as per clauses (d) and © as above Income Tax is payable @ 20% by the seller on the capital gains computed by deducting from the Sale proceeds the cost of acquisition as increased by cost of living index (Section 112 and Section 55).
 

Q3. How can I calculate the income from house property?

A3. The systems of calculating income from house property broadly speaking would be as under:
Actual rent received from property
Less: House Tax to the extent actually paid by the assessee
Balance: i.e. Annual Value
Less:
(1) 30% of the annual values
(2) Actual Interest in respect of loan for the property
Net taxable income from house property
The above-mentioned formula would enable most of our readers to claim correct deduction in respect of income from house property.
 

Q4. Is it advisable to choose a fixed or a floating rate when selecting a home loan?

A4. Choosing the floating rate of interest or not depends upon the perception of the client. Personally I would feel that fixed rate is good so that I am aware of my liability for interest in years to come and when the interest rates are lower on housing then also it is better to think of a fixed rate. However, as the situation stands as on today I feel that the interest on loan taken should be floating rate of interest because correction is expected in the interest in the coming period.
 

Q5. My wife & I have jointly taken housing loan for a single housing unit. Can we both avail tax benefits in our individual tax returns & how much?

A5. Happy and relax and get the benefit of enjoyment of tax deduction for both of you. Please do remember that the benefit in respect of interest on loan as also on repayment of the housing loan etc. is allowed to each co-owner of the property. Hence, you as well as your wife will be able to claim the benefit of tax deduction in respect of interest on loan as well as on repayment of loan.
 

Q6. Can I avail tax benefits for buying land? I want to invest in land rather than flats and I will avail bank loan for the same. Can I avail a tax benefits for this loan?

A6. If you want to invest only in land then no income-tax benefit will be available to you. However, you buy the land and thereafter you construct your house on the same then the total value of your residential property will comprise of cost of land as well as the cost of construction. In this event, you will be able to enjoy the tax benefits on the full amount of the property inclusive of the cost of the land. Please contact your nearest bank for obtaining details about the loan on the land. Generally speaking, a bank will give you loan for construction of the property on the land owned by you. There are options even available where you can obtain loan even on the land.
 

Q7. How do I calculate the capital tax gain?

A7. For the purpose of Real Estate the Long-term Capital gain would be only if you hold the property for more than three years, then it is subjected to tax @20% only. In case you sell the property in less than three years time then it would become short-term Capital Gain and the same is required to be taxed at the prevailing tax schedule of the rate applicable to the assessee depending on his other incomes.
 

Q8. Is there any way I can be exempted from paying Capital Gain Tax?

A8. Innumerable ways and options are available for saving capital gains. For example, in the first place invest in a residential house property or a flat to make investment so as to see that capital gains are exempted. Likewise, if a person were to make the investment in REC or NHAI bonds then also he enjoys complete exemption from the long-term capital gain payable by him in respect of capital gains due.
 

Q9. Can I include following in cost of a property:-
a) Interest paid during construction period
b) Loan processing fee
c) Brokerage paid
d) Stamp duty paid
e) Misc. other direct/indirect expenses related to purchase of property i.e. travel, conveyance, hotel stay, telephone calls etc.

A9. Interest paid during the construction period would enjoy tax benefit in total five years as per s.24 of the I.T. Act, 1961. The Loan processing fee, the brokerage, the stamp duty can be added to the cost of the property. The misc. expenses if they can be attributed directly to the purchase of the property then they would form part of the cost of the property.
 

Q10. According to Income Tax laws, when is a person considered to own a house - at the time of allotment or at the time of possession?

A10. The ownership for Income-Tax purpose would be when you receive the possession. Even if payment is not made but possession is received, it will be treated as a sale transaction.