Budget 2016-17

In today’s scenario where possession of the property within stipulated time is a challenge, Budget 2016-2017 proposes tax relief under Section 24 of I-T Act on interest payment on home loan if the property bought, or under construction, is completed within 5 years from the end of the financial year in which the loan was availed instead of the current 3 years. This could actually help save tax up to Rs. 60000.

In addition to above, Finance Minister Arun Jaitley has announced an additional interest deduction of Rs. 50,000 a year for loans up to Rs. 35 lakh sanctioned during 2016-17 provided cost of the house does not exceed Rs. 50 lakh.

Tax benefits in FY 2016-17 for home loan borrowers are summarized below:

Budget 2016 for home loan buyers

Home loans for purchase or construction of a house provides few income tax benefits to the borrowers. Currently, there is an income tax benefit for the interest payments and principal amount on home loans. However, it is felt that few existing provisions are a tad unfair, which can be addressed by the finance minister during the budget.

Partisan treatment to borrowers of self occupied property

When one talks about the interest on the loan for purchase or construction of a house, the prevailing law behaves differently with properties that are occupied by owner differently from the one that is let out or deemed to be let out.

Normally, an individual tax payer can declare interests benefits of upto Rs.2 lakh in a year for a self occupied property including the interest that the person is permitted to avail when the said property is still under construction. In contrary, the law allows deduction of full interest payment for individuals borrowing money with a view to gain profits from the appreciation of property prices. In an ideal situation, the existing clause should be overturned in a manner such that individuals borrowing with a view to benefit from interest arbitrage are not allowed while allowing genuine borrowers the full deduction on interest payment.

Further, it is felt that the limit of Rs.2 lakhs is considerably low, keeping in view the present rate of properties. If we take an example, the cost of a 1BHk may come to Rs. 1 crore in Mumbai. At the existing average home loan rate of 9.50%, the buyers’ annual interest liability will come to Rs.7.6 lakhs if he takes a home loan of Rs.80 lakhs. Keeping this in view, even if the prevailing policy of allowing full deduction on interest payment is not reversed, the government should at least do away with the limit of Rs.2 lakhs for one self-occupied property and bring them on par with let-out property.

Curbing the interest deduction for delayed completion

 The existing law distinguishes between properties to compute the amount of interest deduction. This is based on whether the completion of the construction of the property is within the duration of three years from the end of the year the loan was taken.

Currently the interest allowance is only Rs.30,000 if the construction of the property is not completed within a period of 3 years. However, the interest deduction will be Rs.2 lakhs if the property is constructed within the time period of 3 years.

In recent times, it is observed that a significant majority of home buyers are purchasing under construction properties having possibility of delay in its completion. Therefore, it may look a tad unfair on the part of the government to penalise buyers who are paying for their home loans as well as rental accommodation.

The stipulated timeframe of three years for completion of construction is in stark contrast to the actual situation. A report by PropEquity in May 2015, states that the delay in handing possession varies from 18 months in Mumbai Metropolitan Region to 23 months in National Capital Region (NCR). Due to this very reason, only a few home loan borrowers are able to claim the full income tax benefit of Rs.2 lakhs.

BMC Property Tax payment

As per a new resolution of the BMC’s standing committee, property owners in Mumbai will have to pay an average increase of 14.52% as property tax from April this year. However, owners of flats that measure less than 500 sq ft will not pay the increase as they have been granted relief by the Chief Minister. Under the new rules, there will be no increase for this section for a period of 5 years; a  respite for around 17 lakh families living in houses which have less than 500 square feet of area.

For the information of our readers, The Brihanmumbai Municipal Corporation (BMC) has changed the property tax calculation from the earlier Rateable Value System (RVS) to the new Capital Value System (CVS).

So, how will the property tax be calculated now? Under the RVS, the tax was calculated based on the maximum amount of rent that the property could fetch in a year. The CVS is based on the market value of the property. Read on for clarifications on tax calculations and to know how to pay these taxes.

Calculation of Capital value:

Market value of property (X) total carpet area (X) weight for construction type (X) weight for age of building

The Ready Reckoner (RR) will help you arrive at the market value. RR is a compilation of the rates that denotes a fair value price for a property set by the state government. The builder may charge a premium over such rates however cannot under sell it. The RR gives the base value. Remember, the stamp duty and registration amount payable cannot be lower than these rates.

Check the ward / zone in which your property falls.

Weights for construction type are calculated in units. Refer below for details:

Bungalows & RCC construction 1 unit

Other than RCC (semi-permanent / chawls) -0 .60 unit

Under construction or vacant land 0.50 unit

Weights for age of building are calculated in units Refer below for details:

Properties constructed before 1945 0.80 unit

Properties constructed between 1945 and 1985 0.90 unit

Properties constructed after 1985 1 unit

Now, how is the property tax calculated?

Capital value of property (X) current property tax (X) weight for user category

A weight for user category is calculated in units. Refer below for details:

Hotels and similar businesses 4 units

Commercial properties (shops, offices) 3 units

Industries & factories 2 units

Residential & charitable institutions 1 unit

Where can you pay the property tax?

You can pay property tax at:

• The Office of the Assistant Revenue Officer
• the BMC Help Centres
• The Citizen Facilitation Centre at all the Ward Offices.

You can also make an online payment. Read on to note down the steps:

Log on to the BMC website:

http://cvs.mcgm.gov.in:7001/MCGM_CVS/

• Enter your account number mentioned in your property tax bill. In case you do not remember your account number, use the in-built search feature.
• Choose the option of payment: half-yearly or annually
• Enter the amount to be paid. You will be directed to the payment mode. Currently only ‘Net Banking’ service is available.
• After the payment is successful, the system will generate a receipt. Print it and store for your record.

Make sure that your record is updated and no ‘outstanding’ is shown against your account. In case of such amiss, the responsibility to get it rectified is on you.

Under-construction _ property

Whenever any end user buy property from under construction project directly from investor, so its means that indirectly he is willing to enter into the multi-party transaction. And sometimes it can be complicated, so it’s recommended to know some facts before entering into it. If you are buying property from investors, so deal will not the same as you do while buying property from real estate builders. If any property investor want sell his own under-construction property to any buyer or end users to earn profit, so he have to transfer all the property rights to new buyer in exchange of money. However; whole transaction needs builder to be the part of deal as in starting buyer will neither get the possession of the property nor all rights about the property. This tripartite deal known as the “Assignment Deal” (Assigner, assignee and builder).

Most of the people are unaware about these kinds of deal because its bit complicated as it involves multiple transactions. Sometimes it become stressful and so people need to get alert before entering into any deal with investors. Most of the buyers (assignee) don’t know that they have to deal with other parties too, if assigner or seller has taken loan for same property, so it could be bit more complicated because formalities will also includes closure of the assigner’s loan. Before entering in these kinds of deal you should ask these questions;

1. How much money for property are still dues?

You can ask to builder to show up the statements of account, where you will be able to see the made payments with dates and you should also get the instrument numbers to get the lending. If there is any unaccounted payment, so never consider it until builder is showing you receipt.

2. At the time of inception of the project, what was deal cost between builder and investors?

For fresh buyers it is important to know that actual price of deal at the inception of the projects and he or she should also get the documents such as; copy of deal sale agreement or sale agreement between seller and the builder. If you are planning to take loan, so you need to submit these documents. However; some seller never disclose these facts, but you need to understand that it’s mandatory.

3. There are any pending dues or not?

Ask the seller that there are any pending dues or not because it can attract the large amount of penalties during possession if you will do delay in paying those dues. And in that case builder will charge on new buyer with interest rate.

4. If assigner is struggling with home loan problem, so clear that he will pay or new buyer will pay that home loan.

If seller has taken the home loan while buying same property from builder, so you need to close the loan the issue. You can do it in three ways;

• Seller pays his all funds.
• Seller asks buyer to pay the whole loan as a part of agreement.
• Buyers bank pay to the seller banks. This process is not so easy because product is not available with banks at this point of time.

5.  There are any other loans or conditions with property?

If property is attached with any other condition or loan, so better to clear the loan issues and conditions because if seller will not disclosure these things so you will not know about it. In India, we can search for loan and property of individual, but still there is no facility to search for the collateral created in a property.

6. What should be the penal clause, if assignee backs out from dues?

•    No fund arrangement from self-source
•    No loan eligibility 
•   Any other personal reason

It doesn’t seems to important at time when everything is going good, but its better and recommended to include it as a clause in Memorandum of Understanding to get clarity and basic understanding.

7. Who will be responsible to transfer the fee to builder and at what stage?

In normal conditions, sellers are used to pay the transfer charges, but still there is no rule back so better to clear this because sometimes buyer & seller both avoid paying the changes or they start bargain. The most important thing which matters in transaction is speed through which all parties pay their fees or amount because there will be following parties;

• Assigner
• Builder
• Assigner’s lender
• Assignee’s lender
• Assignee