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

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.

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.

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.

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.

 

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.

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.

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.

 

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.

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, Kolkata & Chennai 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.

Courtesy : Mr.Vimal C. Punmiya, 501 Niranjan, 99 Marine Drive, Mumbai 400002

 

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.

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.

Repayment period options range generally from 5 to 15 years.

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.

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.

Home loans are usually accompanied by the following extra costs:

1. 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.
2. 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.
3. 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.
4. Miscellaneous costs : it is quite possible that some lenders may levy a documentation or consultant charges.
5. Registration of mortgage deed.

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 outgoing and repayment capacity. This varies from case to case.

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.