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Buyers Guide

  • HOME LOAN

    To be eligible for a home loan, the applicant must be at least 21 years of age with a regular source of income from employment or self-employment. The loan must terminate before or when the applicant turn 65 years of age.

    COMMERCIAL LOAN

    To be eligible for a commercial loan, the applicant must be at least 21 years of age with a regular source of income from employment or self-employment. The loan must terminate before or when the applicant turn 65 years of age. The loan can be for the purchase/construction/extension of a non-residential property. A loan for renovation will only be given at the time when the property has been acquired. Professionally qualified and self-employed individuals can apply but a minimum of 3 year’s work experience is a necessary.

    LOAN AMOUNT

    The loan amount depends on a number of factors such as age, income, number of dependents, qualifications, assets and liabilities, income stability, business profits, etc.

    However, there are ways in which to increase loan eligibility and amount. If a spouse or fiancée is earning, applying together as co-applicants can increase chances of a larger loan amount. In such cases, proof of marriage must be submitted. On the contrary, if there are any co-owners they must necessarily be co-applicants. Providing additional security like bonds, fixed deposits and LIC policies may also help to enhance eligibility. However, the most important factor in sanctioning loans is repayment ability. The total cost includes registration charges, transfer charges and stamp duties.

    DOCUMENTS REQUIRED FOR HOME LOANS

    Documents required for self-employed persons:

    • Updated pass book or Xerox copy of the applicants statement of accounts for the past 6 months
    • A Xerox copy of the applicants ration card
    • A profile of the applicants business mentioning at least the nature of the business, client list, suppliers, employee strength, geographical spread, etc
    • In the case of a business partnership a copy of the partnership deed, 3 years P & L a/c, B/S, computation of income certified by a CA and individual computation of income and tax returns for last 3 years is required
    • In the case of a proprietor or professional 3 years P & L a/c, B/S, computation of income certified by a CA and an income tax return file statement for 3 years is required
    • If the company applying for a loan is a Pvt. Ltd. a remuneration certificate, the board resolution for fixing remuneration, the company’s annual report and individual IT returns for last 3 years is required

    Documents required for self-employed persons:

    • Latest salary certificate or the original slip
    • A Xerox copy of Form no.16 A (TDS Form) from the applicants Employer
    • The original certificate from the applicants employer for any other allowances that are not reflected in the applicants salary slip
    • A Xerox copy of the applicants updated bank pass book or a statement of the applicants accounts for last 6 months
    • A Xerox copy of the applicants voter I.D. card or the applicants Company’s I.D. or the applicants passport/ ration card
    • A passport size photograph of the applicant & co-applicant

    DISBURSEMENT

    The loan will be sanctioned after the selection of property and submission of the required legal documents. The process might take some time as each document needs to be verified for the safety of the applicant. The 230 A Clearance of the seller and / or 37I clearance from the appropriate income tax authorities (if applicable) is also needed. Once the above has been submitted and verified, the registration of the conveyance deed and investment of the applicant’s own contribution and the loan amount will be disbursed by the bank. The disbursement will be in favor of the builder.

    Documents required for disbursement:

    • Loan agreements
    • Disbursement requests
    • Post-dated cheques
    • Personal guarantors documents

    A stamp duty is a kind of tax that is levied on the transactions concluded by way of documentation or instruments. The tax was sealed by the Bombay Stamp Act (1958).

    As per the regulations of this Act, the buyer must pay a 5% stamp duty on the cost of the flat. This payment is a pre requisite for the full ownership of property and the consequences for evasion of stamp duty can even lead to imprisonment. For residential spaces that cost above Rs. 500,000/-, the purchaser must pay an excess stamp duty of Rs. 7650/- (plus 5%). For commercial spaces, the stamp duty is simply 5%. However, these rates are subject to change.

    Once the buyer decides to purchase a residential property, the stamp duty is calculated according to the agreement value or the market value, whichever is higher. The investor will then need to obtain a pay-order, which must be addressed in favor of “Superintendent of Stamps, Mumbai”. After the submission of the pay-order, the agreement is completed and signed by all parties.

  • STAMP DUTY & REGISTRATION

    REGISTRATION

    The process of registration involves the submission of transaction documents (copies) to the required governmental officer for preservation. Once the stamp duty has been paid on a document, it has to be registered under the Indian Registration Act (1908) with the Sub-Registrar of Assurances of the locality of the property. Unless this procedure is completed, the investor does not have full ownership of the property.

    The original copy as well as two photocopies of the document must be submitted to the Sub-Registrar of Assurances. The procedure also includes a registration fee for properties costing more than Rs. 30,000, which is fixed at 1% of the market value or the agreement value, whichever is higher. Once again the value is subject to change. The procedure can only be completed under the presence of two eye-witnesses. When a receipt with a distinct serial number is issued, the procedure is complete.

  • TAX INFO

    INCOME-TAX PROCEDURE

    • Investment in a property in India should not give rise to any income-tax implications for an NRI.
    • Income from letting out the property would be taxable under the head ‘Income from House Property’. Typically, the actual rent received being higher than deemed values, would be taxable in India, at regular slab rates [current maximum slab rate is 30.9 percent]. Deductions such as (a) standard deduction of 30 percent of the annual value (i.e., rent received/ receivable); (b) certain interest costs in respect of the property could be claimed by an NRI. Where the property is not let out, mitigating tax levy on deemed rental values could be explored having regard to facts.
    • Sale of property could give rise to ‘Capital gains’ implications, which would be taxable as per the provisions of the IT Act. The capital gains and tax thereon would be computed as per the following illustration:

    Particulars

    Amount (INR)

    Full Value of Consideration
    100
    Less:
    Cost of acquisition
    (50)
    Cost of improvement
    (10)
    Expenses incurred in connection with the sale of the property
    (05)
    Capital gains
    35.

    Capital gains tax:

    Long-term capital gains [ie, property held for a period more than 3 years] [10.3 percent]; 3.61
    OR
    Short-term capital gains [Other cases] [as per individual slab rates. The maximum slab rate is currently 30.9 percent]
    14.42

    In connection with the above, it should be noted that the benefit of indexation would not be available. However, NRIs could explore the option of claiming certain specified exemptions (subject to conditions) in respect of capital gains arising from sale of property.

  • LEGAL

    Signing a title report (received from the solicitor of the property) with any fine print and specific government reservations is unadvisable. Accept clearance reports that are lucid and specific. For instance, if you are interested in buying property that has been built over reclaimed land, make sure that building has been given clearance by the government. Precautionary measures will prevent you from getting embroiled in any future disputes. They will also help ensure that your home loans aren’t scrutinized.

    When buying property from a developer, you are entitled to question the company for their permissions and approvals for the property in question. A builder must have a ULC Order (though not always), IOD and CC for the project and the MCGM approved plans in order to begin construction.

    TAX BENEFITS

    When buying a property with loans from specific financial institutions, tax authorities provide certain benefits and exemptions from tax payments.

    Section 24 of the Income Tax Act states that an investor is allowed to deduct an amount equivalent to the total interest payable on the housing loan from his/her taxable income within the same financial year. If an investor were to take a loan, he/she would receive a deduction of up to 1.5 lakhs on the interest rate paid. The only concern is that the property would have to be bought or constructed within 3 years from the end of the financial year in which the loan was taken and would have to be self-occupied.

    According to Section 80c of the Income Tax Act: A deduction u/s 80C (2) (xviii) is available on repayment of the principal during a financial year of up to Rs. 1,00,000/-, this aforesaid limit is within the overall limit of Rs 1 lakh, specified in section 80C of the Income Tax Act. Stamp duty, registration fee or other such expenses paid for the purpose of transfer of such house property to the assessee is also considered under this amount. This deduction is taken from the Gross Total Income.

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