Roti, kapda aur makaan (Bread, Cloth and House) are basic necessities of a human-being. While the first two are somehow manageable, but the latter has been getting out of reach of the common people. Rising property prices, job uncertainty are two of the major reasons restraining the common people from buying house. Buying house calls for almost investing earnings of an entire generation. Such a hefty investment does not only of money but also of time spent to earn it. So, it requires a thorough consideration.
This article covers general considerations which one should take care of along with other legal & regulatory compliances required to be adhered to and tax & subsidy benefits. Also, it is advisable to conduct due diligence before buying a property since any disputes later on, will result in prolonged litigation.
I. General Considerations
1. Budget and Purpose
• The very first step in buying a residential house or a flat is to fix a budget. It makes it easier to shortlist a house if you know how much you are willing to spend on it.
• It is very important to introspect purpose of buying residential flat. Broadly, it can either be self-residence or investment. Based on the purpose, separate dimensions need to be considered while buying the property.
• For buying property for self-residence, factors that need to be checked are -
- Connectivity from work place;
- Residential amenities;
- Neighbourhood culture;
- Availability of essentials in surroundings, etc.
• For buying property for investment, factors that need to be checked are -
- Ease of finding tenants;
- Construction to sale ratio;
- Social surroundings, etc.
2. Flat Area - Deceiving Tricks
• Usually, super built-up area of a property that is listed includes area of the house along with shafts, elevator space, stairs, thickness of walls and others. However, carpet area is the actual area within the walls of the flat. Though RERA mandates all developers to quote carpet area, they play this mischief to portray a bigger area.
• Also, a report from Jones Lang La-Salle, a property consultant, reveals that average apartment size has been curtailed in Metro Cities and has shrunk by 31% in past 5 years. This can be explained using a simple illustration - earlier, a 2BHK had an average size of 750 Carpet, today they try to accommodate 3BHK in the same carpet area by making rooms smaller. So don’t compare the price tag, rather compare price per square feet, whether the project is cheaper than others.
3. Legal Check of Property
• Ensure the title clearance of the land where property been constructed or is being built upon. The developer should have approvals and NOCs from Area development authorities, water supply & sewage boards, electricity boards and Municipal Corporation. In case, you’re availing a home loan facility, the concerned bank will validate your property documents before loan sanction.
• Since for many it is like investing life savings, it is advisable to hire services of a legal expert, i.e. a lawyer to verify the authenticity of all documents.
4. Apartment Possession
• Very few projects are actually completed on time. RERA has made it stringent for developers to complete projects on time. However, even RERA legislation permits 1- year delay of possession. As a buyer, you should have a clear estimate of the timeline in which you may receive the possession.
• Also, people fail to realise that till the time you get possession, it is buyers duty to incur the expenses of interest on home loan, if any and also, opportunity cost of rental income. So, consider the same while making decision to buy under construction property compared to property with ready possession.
5. Hidden and additional charges
• There are a number of additional charges over and above the Purchase price like -
- Parking Charges;
- Club Membership;
- GST,
- Stamp Duty, etc.
All these need to be factored in and things need to be compared based on total price to be paid.
• Developer offering under-construction property might give offer discount on Gross Price. However, GST is required to be paid by buyer in case under-construction property is being purchased. GST is to be paid at 5% over and above the Gross Price. Thus at times, discount considering GST, interest before possession and other charges, one ends up paying more than what was easily available with ready possession.
6. Myths
• Price of Property always rises - There is a notion that investment in property is the best since its prices always go up. But this is incorrect. Property prices in metros like Mumbai and Delhi have been stagnant since past 5 years (i.e. 2016-2020), in certain areas they have even plunged. Presuming stagnancy, consider inflation, you have effectively lost money on the investment.
• Rates will be revised soon - This is the favourite line used by developers to close the sale. They say the project is almost sold and prices will be revised upwards. The fact in present time is - money is costly for Developers. Given the current situation of credit crisis, Developers will continue to offer discounts even if it means taking hit on their profits.
• What you see is what you get - The interiors and furniture which you see in the sample flat are for marketing purpose and create optical illusions. It is better to imagine based on the architectural drawing which will tell you the exact area. Better to see a constructed flat for better clarity.
II. Legal and Regulatory Compliances
1. TDS Compliance
• In case property value exceeds INR 50 lakhs, buyer has to deduct TDS at 1% and remit the balance amount to the seller. Such tax deducted needs to be deposited with the Govt. of India and relevant TDS return needs to be filed. There is a simple form being a challan-cum-return.
• Failure will attract interest at 18% p.a. and penalty of INR 200 per day till the compliance is completed under Income-tax Act, 1961.
2. GST
• In case one wishes to buy an under-construction Property, he will have to pay GST at 1% in case the project falls under affordable housing scheme. Otherwise it will be 5%.
• However, the developer might factor in GST in purchase price offered.
3. Registration of Property
• Once you decide to buy a property, it is advisable to get property registered. Registering Property has a cost involved (Stamp Duty, Registration Charges, etc.) Since it is very important to keep title clearance; registering property helps in the same.
• In past certain developers had sold same flat to multiple buyers. Once you register, one is immune from such frauds. Also, availing home loan (though you have funds) is advisable since financial institution verifies all documents and completes due diligence. It offers mental peace of course, at the cost of interest.
4. File Income-tax Return
• The registry has to share data with the Income-tax Department. Income-tax has details of all the property transfers above INR 30 lakhs. Income-tax might want to know source of funds from the buyer.
• It is advisable to regularly file income-tax return and keep relevant documents properly filed. This is to avoid last minute haste when the Department seeks relevant information.
III. Subsidies and Tax Benefits
1. Pradhan Mantri Awas Yojna
• This scheme is for first time home buyers. There are various conditions that need to be satisfied under this scheme. Govt. of India bears part of your interest in EMI to the extent of INR 2.67 lakhs.
• It is also obligatory to inform the same to the respective financial institution while availing the loan facility.
2. Interest on Self Occupied Property & Rented Property
• The interest you pay on your home loan is allowed as loss in case of Self Occupied Property. Maximum interest allowed to be carried forward as loss is INR 2 lakhs. Such loss is allowed to be set-off against salary income, business/ professional income and income from other sources.
• In case the property is rented, interest paid on home loan to the extent of INR 2 laksh shall allowed to be deducted from net rental income (after standard deduction of 30%) in the same year. Interest paid over and above the specified amount can be set off within 4 years as specified in para above.
3. Deduction for Stamp Duty paid and Principal repayment of Home Loan
• Home Loan principal repaid during the year and stamp duty paid shall be allowed as deduction from total income to the extent of INR 1.5 lakhs under section 80C of Income-tax Act, 1961.
We understand that buying a house is a very crucial decision in your life and we hope the above pointers might assist you in making informed decision.
The authors can also be reached at utsavmilanshah@gmail.com and doshiviren@live.com
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