5 Things to Know before purchasing a house or flat from the Builder

Are you planning to buy your dream house? Have you made the final choice for your ideal home and just left with signing of the house agreement? Is your home loan approved? Are you also done with all the other major formalities?

If the answer to the above questions is a yes, which makes you think that half of your burden is gone and the things ahead will go on in a smooth and orderly fashion, then you actually need to rethink.

I say this because, even with the major work done, one still has the big task of protecting his/ her dream coming true, from the legal traps of the builder. In such a scenario, some points that need to be remembered and certain measures that should be taken against those tricks.

Actual selling price of the house: According to the property agreement, the buyer is required to bear the purchase price of the house. This cost includes the utility expenses such as water, electricity, parking, various taxes levied, and registration costs too, at times. The builder might also impose certain extra charges on any of these thereafter.

Alert Tips:

One should read the agreement thoroughly and check for all details in the agreement including all the charges applicable.

Get the agreement verified by a lawyer for any hidden charges, and get the same rectified (if any).

In case of builder asking for altering the original plan, ask for the approval from the government authorities in the form of a sanction letter.

Actual size of house:

In your house agreement, the size of the house is clearly stated, but it will also contain a clause stating that the plans, design and specifications to be temporary, with the developer reserving the sole right to make any changes. So, you never know if you will actually get the same size for which you agreed upon.

Watchful Tips:

It is suggested to do some research on the builder’s earlier projects, before going further with any kind of deal.

It will also be beneficial to have a discussion with other buyers, who have already got the possession, about the kind of problems faced by them.

One can also try to include a clause from his side in the agreement about the minimum and maximum size beyond which the size cannot be increased or decreased by the builder.

The Carpet Area:

The area of an apartment excluding the wall area is termed as the carpet area. This is the area where the carpet can be laid. Then, there is the built-up area which includes area of walls and the balcony, and the carpet area. This built-up area, along with common areas such as lifts, lobby, staircase, gardens, pool, etc. is termed as the super built-up area.

Tips:

Always buy a property based on its carpet area.

Always ensure that area is mentioned in the agreement papers.

Try and include a clause for contract termination, in case builder provides a house with a lesser carpet area than mentioned in the contract.

Possession Date:

The agreement will generally have a tentative date of house possession. Although, there have been instances where the possession date mentioned has been delayed for more than a year.

Tips:

Check the construction progress often, and in person.

If you find the progress slow compared to what it should have been, which might delay your possession date, one can always pressurize the builder.

Also, forming a society with other buyers might also help in getting the things speed up at the builder’s end.

Certificate of Completion:

The builder is also supposed to provide a completion certificate, while handling the house to you. This certificate is issued by the municipal authorities, which is an establishment of the compliance with the approved plan. This certificate is required for house registration and other legal formalities.

Tips:

Always ensure that the agreement either states about the certificate or has a clause stating the builder’s liability to provide the certificate.

If the builder delays in the process of providing the certificate, do pressurize him with other buyers.

Apart from the above mentioned, there are also certain other things that needs to be taken care of, such as: management of society, construction material quality and durability, etc. which should be clarified with the builder before making any agreement.

For this purpose, one can even try adding certain clauses in the agreement for the builder to agree to your demands. Also, because there is no industry regulator for such constraints, the best way to handle such issues is to remain alert and aware of your requirements and acquisitions.

The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at  ramalingam@holisticinvestment.in

Tags: Things to Know before purchasing a house or flat from the Builder; Tips for purchasing a house or flat; 

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HRA Exemption: LandLord's Pan Mandatory if Rent Paid Over 1,00,000 Per Annum

Not a good news for salaried person, who are living in rented house and claiming House rent allowance exemption under section 10 (13A )of Income Tax Act. As per CIRCULAR NO : 08/2013 F.No. 275/192/2013-IT(B) dated 10.10.2013 Income Tax department has recently has stated that  an employee who is claiming House rent exemption (HRA) and if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer.

Earlier Pan of landlord was mandatory if rent paid  was 1,80,000 p.a wef financial year 2011-12 ,now the limit has been significantly reduced to 1,00,000 p.a only wef financial year 2013-14.

It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the House Rent Allowance or any portion thereof from the total income of the employee.

Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs.3000/- per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent. 

Further if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer. In case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee.

How to calculate  HRA exemption amount:

According to Rule 2A of the Rules, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be the least of the following:

(a) The actual amount of such allowance received by the assessee in respect of the relevant period i. e. the period during which the accommodation was occupied by the assesse during the financial year; or

(b) The actual expenditure incurred in payment of rent in excess of 1/10 of the
salary due for the relevant period; or
(i) Where such accommodation is situated in Bombay, Calcutta, Delhi or
Madras, 50% of the salary due to the employee for the relevant period; or
(ii) Where such accommodation is situated in any other places, 40% of the
salary due to the employee for the relevant period,

For this purpose, "Salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

To download official Notification Click Here

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Execution of irrevocable power of attorney of a property in favour of land developers deemed as ‘transfer’

Where an irrevocable power of attorney was executed and registered by a housing society, leading to overall control of property in hands of developer, it constituted transfer under section 2(47)

In the instant case the assessee was a member of a housing society, which transferred certain land to developers under a Joint Development Agreement (‘JDA’), whereby each member was entitled to monetary consideration and a furnished flat. An irrevocable Special Power of Attorney (‘ISPOA’) was executed in favour of the developers which was deemed as a transfer under section 2(47) by the revenue. But assessee contended that handing over of possession of property was conditional in order to enable the builder to obtain necessary permission from the Governmental agencies, and there was no transfer as per section 2(47).

The Tribunal held in favour of revenue as under:

1) Clauses of the ISPOA and JDA clearly showed that the developers were authorized to enter upon the property not only for the purpose of development but for other purposes also;

2) Developers were authorized to amalgamate the project with any other project in the adjacent area or adjoining area as per the special Power of Attorney. The position contemplated by clause (v) of section 2(47) need not be exclusive possession. What is required is that the transferee by virtue of possession should be able to exercise control for intended purposes;

3) In the instant case, the assessee had not given only a license as claimed by the ld. Counsel of assessee, but also the powers of selling, amalgamating, etc, mentioned in the JDA and ISPOA. Section 2(47)(vi) clearly shows that any transaction which has the effect of transferring or enabling enjoyment of any immovable property would be covered by the definition of transfer;

4) Where developers were vigorously pursuing issue of permission/sanction for executing agreement, requirement under section 53A of Transfer of Property Act, regarding willingness of transferee to perform contract, was also fulfilled;

5) Though it is a settled principle of law that notional income can’t be taxed yet in case of capital gain, rigour of tax in case of capital gain would come into play on the transfer of capital asset and total consideration arising on such transfer has to be taxed;

6) Therefore, capital gains tax had to be paid on the total consideration arising on transfer which would include the consideration which had been received as well as the consideration which had arisen and become due and might be received later on - SMT. BINDER KHOKHER V. ACIT(2013) 36 taxmann.com 503 (Chandigarh - Trib.)

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DEEMED OWNERSHIP (SECTION 27)

As per Section 27 there are some persons who are not the legal owners of a property but still deemed to be the owners.

 Following Persons are Deemed Owners of House Property:-

Ø  An individual who transfers House Property to his/her Spouse: If an individual transfers any House Property to his or her spouse otherwise than for adequate consideration and it is not related to an agreement to live apart, the transferor in that case is deemed to be the owner of the House Property transferred.

Ø  An Individual who transfers House Property to his/her Minor Child: If an individual transfers any House Property to his/her minor child otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the House Property transferred. However where transfer is to a minor married daughter then transferor shall not be treated as the deemed owner of the House Property.

Note: Where cash is transferred to Spouse/Minor child and property is purchased by the transferee (Spouse or Minor Child) out of such cash then transferor shall not be treated as the deemed owner of such property. However Income arising out of such property shall be clubbed with the income of Transferor.

Ø  Holder of an Impartible Estate: The term Impartible Estate means the Property which is not legally divisible. The holder of Impartible estate will be treated as the owner.

Ø  Member of a Co-Operative Society: A member of a co-operative society, AOP, to whom a building or part thereof is allotted or leased under a House Property scheme of such society/AOP shall be deemed to be the owner of that building or part thereof although the  co-operative society/AOP is legal owner of that building.

Ø  Person in Possession of Property: A person who is allowed to take or retain the possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of the Property Act shall be deemed owner of that Building or Part thereof. This would cover cases where

·         Possession of property has been handed over to the buyer.

·         Sales consideration has been paid or promised to be paid to the seller by the buyer.

·         Sale deed has not been executed in favour of the buyer

The buyer would be deemed to be the owner of the property although it is not registered in his own name.

Ø  Person having right in a Property for a period not less than 12 years: A person who acquires any right in or with respect to any building by way of lease for a period not less than 12 years shall be deemed to be the owner of that building or part thereof.

This Article has been Shared by Student of ICAI Palak Aggarwal. She can be reached at aggarwal.palak2809@gmail.com

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HUF ENTITLED TO CLAIM BENEFIT OF SELF-OCCUPATION OF HOUSE PROPERTY UNDER SECTION 23(2)

HUF is a family comprising of group of natural persons. It is a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. Therefore HUF can claim benefit of self occupation of House property under section 23(2).

The Assessee being a HUF claimed the benefit of self-occupation of a House Property u/s. 23(2). However the Assessing Officer did not accept the claim and denied the benefit of self occupation of house property to HUF arguing that such benefit is available only to an individual who is a natural person and not to an imaginary person i.e. HUF or firm etc.

The High Court in CIT v. HARIPRASAD BHOJNAGARWALA (2012) 342 ITR 69 (GUJ.) has held that a firm cannot physically reside in a House Property and therefore a firm cannot claim the benefit of this provision, which is available to an assessable entity who can actually occupy the House. However, HUF is a group of individuals related to each other. The said family can reside in the House, which belongs to HUF. Since a HUF cannot consist of artificial persons, it cannot said to be a fictional entity.

Therefore the Court held that the HUF is entitled to claim benefit of self-occupation of House Property under section 23(2).

This Article has been Shared by Student of ICAI Palak Aggarwal. She Can be reached at aggarwal.palak2809@gmail.com

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Repco Home Finance IPO

Repco Home Finance Ltd (RHFL) is coming out with an initial public offering ( IPO) for a fresh issue of 15,720,262 equity shares with a face value of Rs10 each in order to mobilise Rs259.4 crore (at the lower end of the price band) to Rs270.4 crore (at the upper end of the price band).

Repco Home Finance (RHFL) is a housing finance company, promoted by Repco Bank.RHFL intends to use the net proceeds for augmenting its capital base to meet its growth related capital requirements for the next three years.

This article has been posted by Jayant Makkar. He can be reached at jayantmakkar@gmail.com

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