Real estate in Chennai

The need for a roof over one's head is as strong today as it was during the Megalithic Age. The difference now is in the kind of shelter we seek -- and the price we pay for it. Buying a house is up there on most people's to-do list.

Banks and lenders have, for some time now, been making it easy to get hold of the money needed for a room of one's own, and falling interest rates make it even easier. Most important, however, are the tax breaks and incentives that are provided to homebuyers.

We take a look at the ways in which the government encourages people to buy residential houses, particularly under Section 54 of the Income Tax Act.

Capital gains: Under Section 54, an individual or HUF taxpayer gets exemption from tax in respect of the long-term capital gains arising from the sale of his residential house, if he invests an amount equivalent to the gains on buying or constructing another residential house within a specified time. If the amount invested is lower than the capital gains income, the exemption is proportionate.

Under Section 54F, a taxpayer can get a similar benefit if he uses the long-term capital gains from the sale of any capital asset (other than a residential house) to buy or build a residential house within a specified time.

While Section 54 grants exemption with respect to reinvestment of the capital gains, Section 54F grants exemption with respect to reinvestment of the net consideration, that is, sales proceeds net of expenses incurred exclusively in connection with the sale, including brokerage, transfer fees, etc.

Reinvestment timeframe: The specified time permitted under both Section 54 and Section 54F for reinvestment is the same. If reinvestment is by way of purchase, it must be done either one year before or two years after the date of sale of the original capital asset. If reinvestment is by way of construction, it should be made within three years from the date of sale of original capital asset.

There is no need for you to reinvest the very same funds that you receive from the sale of assets; the exemption is judged on the basis of reinvestment of equivalent value. But in order to claim exemption under either section, it is compulsory for you to deposit the amount in a Capital Gains Account Scheme with a bank if this amount is not reinvested till the due date of filing return of income.

The amount so deposited has to be subsequently utilised for reinvestment within the specified time.

To be able to avail the exemptions under these sections, you will also have to fulfil certain other conditions when you reinvest the amount in another residential house within the specified period.

Only residences: Most importantly, the new purchase must be a residential house, no matter of what size and locality. You can avail of the exemption whether you buy a room in a chawl or a flat in a co-operative society or an apartment or a row house or a bungalow, whether in a metro city or at a hill station or in a small town or village. All that matters is that you buy a residential house.

The very fact that the income tax law permits acquisition by way of construction of property would suggest that the land beneath the house would also constitute a part of residential house. In the case of a flat in a co-operative society, the price paid for the land indirectly forms a part of the price paid for the flat.

The modern concept of a residential house is an evolving concept. It is not restricted to four closed walls with doors and windows, but encompasses the amenities, facilities and utilities that can be associated with the house. Structures like garages, servants' quarters, swimming pools, verandahs, lifts, play courts and gardens can be considered as part of a residential house, if they form part of the house or flat.

To avail the exemption, you don't necessarily have to live in the residential house that you buy. You can buy the house and leave it locked for most of the year and use it as a holiday home. Or you can lease it or rent it out to other residential users. But you must ensure that the end use of the house is for residential purposes; you cannot, for instance, buy a house and lease it to a doctor who converts it into a clinic.

Cost components: The quantum of qualifying investment (known as the cost of acquired house) can be determined keeping in view the concept of a house as explained above. Broadly, costs and expenses that are incurred or are necessary to be incurred till the date the property is occupied (by a residential user) can be regarded as qualifying investment in the acquisition of house for capital gains exemption. The qualifying components of cost will include:

1.Purchase cost of land or TDR (transferable development rights) when you construct your own house;
2.Amount paid to a builder or developer for purchasing a newly constructed property (inclusive of the price quoted for amenities and facilities tagged on to a flat);
3.Purchase price paid to an existing member of a co-operative society or apartment for acquiring his right title and interest in the property;
4.Stamp duty, registration charges, associated legal fees for documents and formalities;
5.Brokerage paid to a broker;
6.Transfer fees or premium payable to the society or authorities for perfecting the transfer;
7.Cost of certain renovations of a civil nature under instructions of the purchaser when, typically, a "khokha" of a flat is contracted and further expenditure on flooring, tiling, sanitary fittings, platforms, lofts, first initial painting, etc., is incurred prior to occupation of the flat;
8.Interest incurred up to the stage of occupation of the house.

However, any expenditure on furniture and furnishing, soft furnishings, decoration items, paintings, closing of lofts, etc., cannot be regarded as part of the cost of house. All recurring expenses such as repairing, painting, replacements, etc., will also not qualify as acquisition cost for claiming the exemption. Since the house will need to be owned by the taxpayer, the amount paid as premium for securing tenancy of the house is not likely to qualify as cost of the house.

The tax officer has the right to verify the genuineness of any expenses. So it's best that you maintain a record of all expenses in respect of which exemption is being claimed and preserve all the bills and proof of payments.

The taxpayer also has the option of claiming deduction under Section 80C for payments made in respect of repayment of borrowing or for stamp duty, registration fee and other expenses incurred during the transfer of such a residential house in his name.

The home loans segment has been growing at a robust rate over the past few years. Obviously, most of the growth has come from borrowers residing in India. However, non resident Indians also account for a portion of the home loans business. This article takes a look at home loans for NRIs and how they differ from home loans for resident Indians.

The home loan offering for both resident Indians as well as NRIs is fundamentally the same. The basic difference lies in the eligibility criteria. Given below are 3 such parameters across which home loans for NRIs differ as compared to those for resident Indians.

1.The NRI loan seeker has to be a graduate. The same is not necessarily the case for resident Indians- they can still qualify for a home loan subject to fulfilment of certain criteria. He also needs to have a minimum monthly income of $ 2,000 (this criterion may differ across HFCs). The NRI also has to route his EMI (equated monthly instalments) cheques through his NRE/NRO account. He cannot make payments from another source say, his savings account in India.

2.Another difference lies in the home loan tenure. Loans to Indian residents are available for a 20-year tenure. In fact, some housing finance companies (HFCs) even offer home loans on a 30-year tenure, if the applicant fulfils certain criteria. NRIs however can avail of a home loan only for a maximum of 15 years (depending on the HFC).

3.NRIs are also required to submit additional documents than is normally required for a resident Indian. For example, certain documents like a copy of the passport and a copy of the works contract (also sometimes referred to as the contract card/labour card) are required only for NRI loans.

Another important document required while processing an NRI home loan is the power of attorney. The POA is required because the borrower is not based in India and in such a scenario, the HFC would need a 'representative' 'in lieu of' the NRI to deal with. Although not mandatory, the POA is usually drawn on the NRI's parents/wife/children.

The rate of interest is another area that separates the NRI from the resident Indian. Home loans to NRIs are costlier. The difference is to the extent of 0.25 per cent-0.50 per cent. As is the case with loans for resident Indians, some HFCs also have an internally earmarked 'negative criterion' for NRI home loans. For example, certain locations are marked as being 'negative' in the books of HFCs. An NRI who hails from a negative location may find it difficult to get a home loan.

Finally, NRIs should take due care while selecting their HFC. Considering the geographical distances involved, it is pertinent that loan seekers associate with a proactive and responsive HFC.

1.For Salaried Individuals

Latest salary slip showing statutory deductions AND Form 16 (Declaration from the employer giving the details of income and deductions, duly signed by an authorised signatory of the Company) OR Latest acknowledged IT Returns AND Bank statements for the last 3 months

2.Self-employed Individuals / Proprietor

Computation of income for the last 2 years certified by a C.A OR P&L and Balance Sheet for the last 2 years certified by a C.A. AND Copies of acknowledged IT Returns for the last 2 years AND Bank statements for the last 6 months

3.Partnerships

Computation of income for the last 2 years certified by a C.A. OR P&L and Balance Sheet for the last 2 years certified by a C.A. OR Copies of acknowledged IT Returns for the last 2 years AND Partnership Deed, Letter of Authority, Bank statements for the last 6 months, Proof of office

4.Private Limited Companies

Computation of income for the last 3 years certified by a C.A., P&L and Balance Sheet for the last 3 years certified by a C.A., Copies of acknowledged IT Returns for the last 3 years, Memorandum and Articles of Association, BoardResolution, Bank statements for the last 6 months, Authority letter from all Directors to accompany the application form with photographs of authorised signatories if not specified in the board resolution, Proof of office

5. Documents required for (NRIs)

Salaried NRI Applicants

• Copy of valid passport showing VISA stamps
• Copy of valid visa / work permit / equivalent document supporting the NRI status of the proposed account holder
• Latest contract copy evidencing Salary / Salary Certificate / Wage Slips
• Overseas Bank A/C for the last 3 months showing salary credits

Self Employed NRI Applicants

• Trade license or equivalent document
• 6 months overseas bank account statement and NRE/ NRO account
• Computation of income, P&L account and B/Sheet for last 3 years certified by the C.A. / CPA or any other relevant authority as the case may be (or equivalent company accounts)
• Passport copy with valid visa stamp
• Brief profile of the applicant and business

Your wish to get the keys for your dream house will become a bit more difficult now.


After ICICI bank, HDFC bank has also decided to hike the home loan rates by 50 bps by next week. HDFC Bank clarified that 1 per cent increase in rates will not impact any demand for housing loans. The bank is also expected to hike rates by 1st April.


“We have a unique situation now. It is the year-end for everyone and there is a liquidity crunch. But the government and the RBI have very clearly said that they are taking steps to improve liquidity in the system. If liquidity improves in the system and if more resources are available, then again one can bring rates down, says HDFC Chairman Deepak Parekh in an interview.

“The dynamics of floating interest rates is, it goes up and also comes down. So, I don't think that we can assume that rates will keep going up just because they have gone up once.”


SBI has increased its home loan rates by 50 to 75 bps. ICICI Bank had raised its floating reference rate by 50 basis point to 9.25 per cent.