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An overview of Income Tax Rules
pertaining to properties is as under:
SECTION 24 (2):
Interest Deductions - The budget presented
by the Finance Minister for the year 2001-2002, has increased
the ceiling on the amount of deductions from Rs. 1,00,000/- up
to Rs.1,50,000/- 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 within
which to reinvest the funds from the gain of the sale of the
capital asset.
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. 20,000/- is eligible for deduction under Section 88
whereby 20% (i.e. Rs.4,000) can be deducted from the total
amount of tax payable.
Q. What should the parties do
if the Registrar refuses to register the document/s?
Ans. On refusal to register 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 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 as 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.
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.
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.
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 :-
- Home Purchase Loan
- Existing Home Improvement
Loan
- Home Construction Loan
- Home Extension Loans
- Home Conversion Loans
- Land Purchase Loans
- Bridge Loans
- Balance Transfer Loans
- Refinance Loans
- Stamp Duty Loans
- Loans to NRIs
Home Purchase Loans:
There are the basic home loans for the purchase of a new home.
Home Improvement Loans:
These loans are given for implementing repair works and
renovations in a home that has already been purchased by you.
Home Construction
Loans: These loans are 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 loans are 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 loan 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 loans help 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 loans are 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
EMI
is 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 a 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:
-
Processing Charge: it's a fee payable to the lender on
applying for a loan. It is either a fixed amount not linked
to the loan or may also be a percentage of the loan amount.
The loan amount received by you cannot be less than the
processing fee.
-
Prepayment Penalties: when a loan is paid back before the
end of the agreed duration a penalty is charged by some
banks/companies, which is usually between 1% and 2% of the
amount being pre paid.
-
Commitment Fees: some institutions levy a commitment fee in
case the loan is not availed of within a stipulated period
of time after it is processed and sanctioned.
-
Miscellaneous costs : it is quite possible that some lenders
may levy a documentation or consultant charges.
-
Registration of mortgage deed.
Guarantors:
Some institutions ask for 1 or 2
guarantors, others require no guarantors at all.
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 |
Invest-
ment made from local funds |
Invest-
ment made from foreign funds |
Invest-
ment made from local funds |
Invest-
ment made from foreign funds |
No
Approval is required under FERA |
Invest-
ment made from local funds |
Invest-
ment 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 repatria-
tion facility required |
|
Application in form IPI-1 |
Declaration in form IPI-7 |
- |
Application in form IPI-1 |
- |
- |
- |
No repatria-
tion of sale proceeds |
repatria-
tion of original Invest-
ment allowed after 3 years on applying to RBI in form IPI-B |
- |
No repatria-
tion of sale proceeds |
- |
- |
repatria-
tion of original Invest-
ment allowed on applying to RBI in form IPI-8
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Foreign citizens of Indian origin
For foreign citizens of Indian
origin, different procedures have been laid down depending on
:
- 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
- From local
funds in Rupees.
1. Who is an NRI?
Under the Foreign Exchange Regulation Act
of 1973, Non-Resident Indians are:
- Indian citizens who
stay abroad for employment or for carrying on business or
vocation outside India or for any other purpose in
circumstances indicating an indefinite period of stay abroad.
OR
- 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
- 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
- Officials of the State
Government and Public Sector Undertakings deputed abroad on
temporary assignments or posted to their branches or offices
abroad.
- 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.
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