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TREND TALK
Cement sense
TAX TIPS
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TEASER Home loans rates Borrowers with low financial means may get attracted to teaser interest rates for home loans — finding the initial low interest rates to be within their financial means. But they may land themselves in a financial crisis in the long term, writes S.C. Dhall
While having a home of one’s own is a dream nurtured by hundreds and thousands of people, home loans offer an easy way to make that dream into a concrete reality. But the way to get that loan is no cakewalk as it is nothing less than a maze of interest rate calculations and ‘good deals’ which leave many confounded and confused. Floating interest rate, fixed interest and now the teaser interest rate — the offers are many and one is at a loss to decide which one is the best suited to one’s requirements.
One has been hearing a lot about teaser home loan interest rates being offered by different banks in the recent past. The “teaser” tune is the result of home loan rate cut war. A large number of banks and housing financial companies are cutting their home loan rates or are keeping it fixed for the first two to three years to capture market share. The teaser home loan product first introduced by SBI in January 2009, market leader HDFC has decided to join the bandwagon. They announced a similar teaser loan product on December 1, 2009. ICICI bank also announced its own teaser plan. Teaser loans refer to step-up loans where interest rate is a low fixed rate in the initial years, but is benchmarked to market rates after two to three years with a minimum floor. The Central Bank had already raised concern over teaser interest rates being offered by banks. “Borrowers with low financial means may get attracted to such loans on finding the initial low interest rates to be within their financial means, but may land themselves in a financial distress in case the interest rates start rising”. The matter was also highlighted in the Lok Sabha on April 23, 2010. The government holds the view that the resulting delinquency of such loans would have an adverse impact on the financial stability of the lending banks. According to the Finance Ministry, the teaser interest rates are a matter of regulatory concern. The Finance Ministry has raised the concern at a time when some banks are either re-launching teaser rates or are extending the period of previously-introduced rates. Since the government is the majority shareholder in all public sector banks and it does have an obligation to protect both shareholder and the public interest. Earlier, most banks, including HDFC, had discontinued teaser rates when interest rates began to rise in January, anticipating high inflation and steep government borrowings. the SBI which was the first bank to come up with teaser rates had extended the scheme till April 30. Do teaser loans make more sense than regular floating rate products? Interest rates are thought to have bottomed out and are widely expected to go up in July 2010 and these teaser loans provide a cushion at least for the next few years. After teaser period is over, if your lender does not offer you market determined floating rates, you should switch your loan to another lender. The effective rate of these teaser loans are also fairly good and hence it should clearly be preferred over regular floating rate loans which might increase rates next year itself based on current market conditions. So what should a consumer look at while choosing a lender based only on teaser rates? The big variable in most cases is the applicable floating rates after the initial period of fixed rates is over. In working out the effective rates it has been assumed that the floating rates will be what they are today. This may not necessarily be true as different banks may follow different strategies on floating rates at that time. Can existing home loan consumers take advantage of these schemes? On paper all the banks (including PSU Banks) that offer these teaser products are offering it only to these new customers and not to their existing customers. So if you are an existing loan customer of any of these lenders and want to take advantage of these schemes, you should switch your loan to another lender (i.e. become a new customer to that lender). All the lenders offer the teaser rate products to existing home loan customers of other banks. Ironic but it is not available to their own customers. But with effect from July 1, 2010, the base rate system is set to kick in. The Banking Codes and Standards Board of India (BCSBI), supported by the RBI had obtained numerous complaints from the clients about these teaser loans that these loans are only for the benefit of the new customers. Earlier, RBI had said banks needed to explain to their borrowers about the implications of such rates and to appraise repaying capacity of the borrowers when the rates go up. Banks can now have schemes only if they pass on the benefits to all the customers, which is very unlikely.
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TREND TALK New Delhi and Mumbai are considered the most preferred real estate investment destinations for this year (2010), with 62 per cent of prospective buyers wanting to invest in a home and live in these two cities, a nationwide survey revealed. The survey by housing and realty portal makaan.com entitled “Realty Trends-2010” conducted in the metros and tier II cities found that nearly one-third of the people — 34 per cent — would like to buy a house in the national capital. Mumbai follows close behind with 28 per cent of the people desiring to settle in their own home in the city of dreams. Surprisingly, Bengaluru and Hyderabad came a distant third as the option of only 11 per cent of the people surveyed, said Aditya Verma, vice-president, makaan.com. “The survey also revealed that in 2010, the realty sector will be driven by the end users who shied from making property purchases last year in view of the recession and fluctuating prices,” Verma added. A majority of the buyers have also said the speculators driving the realty boom of 2004-07, have been more or less driven out of the markets. As far as Mumbai is concerned, the survey has some unexpected results. While 72 per cent of the property seekers want to buy a home for self-consumption, nearly 20 per cent plan to take the plunge this year itself. The remaining 8 per cent will treat it as a short-term investment option. About the location choices, the north-west Mumbai suburbs — Andheri, Jogeshwari, Goregaon, Malad, Kandivli, Borivli and Dahisar — have emerged as the hot favourites with 30 per cent of the people opting for this region. The survey was carried out among people in the 26-35 age group, who form the main chunk that invests in property for long-term purposes. — IANS
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Cement sense
These are: Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Slag Cement (PSC).
Ordinary Portland cement
Ordinary Portland Cement is classified into three categories — 33 Grade Cement (OPC 33 Grade); 43 Grade Cement (OPC 43 Grade); and 53 Grade Cement (OPC 53 Grade), But all manufacturers do not manufacture all the three grades of cement as they target different categories of clients. 33 Grade Cement
(OPC 33 Grade) 33 Grade cement is used in ordinary and small-scale constructions like houses and small commercial buildings for brick masonry works and RBC slabs. It takes more hardening and setting time, but requires less water curing. Consumers should use only those cements that have BIS specification : (IS:269/89 for 33 Grade OPC ) on compressive strength level. 43 Grade Cement (OPC 43 Grade) It is used in all constructions, including plain and reinforced cement concrete, brick and stone masonry, floors and plastering. It is also used in the finishing of all types of buildings, bridges, culverts, roads, water-retaining structures. It takes less time to harden and set as compared to OPC 33 Grade. But it requires more water curing then 33 Grade cement. BIS specifications on compressive strength levels for this are IS 8112-1989. 53 Grade Cement
(OPC 53 Grade) This is an ordinary Portland cement produced from high quality clinker grinded with high purity gypsum, and is used these days in all constructions, including plain and reinforced cement concrete, brick and stone masonry. It is also used in the finishing of all types of buildings, bridges, culverts, roads, water retaining structures. Hardening and setting time is very less as compared to the other two types of cements, but it requires lot of water curing. It provides high strength and durability to structures because of its optimum particle size distribution, superior crystalline structure and balanced phase composition.
Portland Pozzolana cement
This is a special cement, made by grinding mixture of higher strength Ordinary Portland Cement clinker with high quality processed fly ash from 15 to 35 per cent — based on norms set by the R&D departments of different manufacturing companies. This cement has a greater fineness as compared to the Ordinary Portland Cement (OPC) leading to better mixing quality. It is more impermeable and corrosion resistant. This unique, value-added product has hydraulic binding properties that are not found in ordinary cements. Portland Pozzolana Cement (PPC) should conform to BIS specifications (IS: 1489 (Part-I)/1991). It is available in specially designed bags.
Portland slag cement
This is a slag-based blended cement that imparts strength and durability to all structures. It is manufactured by blending and inter-grinding OPC clinker and granulated slag in suitable proportions. PSC has many superior performance characteristics which give it certain extra advantages when compared to Ordinary Portland Cement.
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Reduction in free lime leaching. All these factors make for a strong, durable, and longer lasting construction. PSC benefits the structure, protects the environment by reducing CO2 emissions and helps conserve energy. Thus it is often referred to as
eco-friendly cement.
RMX
Ready Mixed Concrete, or RMX as it is popularly called, is another important shape of cement product being marketed by cement manufactures and certain companies which market only RMX to meet the needs of the medium consumers and builders. This is concrete that is specifically manufactured for delivery to the construction site in a freshly mixed and plastic or unhardened state. Concrete itself is a mixture of Portland Cement, water and aggregates comprising sand and gravel or crushed stone. In traditional work sites, each of these materials is procured separately and mixed in specified proportions at site to make concrete. Ready Mixed Concrete is bought and sold by volume - usually expressed in cubic meters. RMX can be custom-made to suit different applications.
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TAX TIPS S.C. Vasudeva Q. My brother has already rented out a floor of his SCO to four tenants (cabin wise) for Rs 5,000 per month each (total Rs 20,000 p.m). Now he wants to rent out another two floors to a company for Rs 1,00,000 per month (excluding sales tax). Now I think service tax will be applicable. So, please clarify the following:
Procedure for registration for sales tax. Whether deduction of service tax paid out of landlord’s own pocket is allowed out of the gross rent, while calculating taxable income. How tax liability is calculated under the income from house property head. — R.K. Gupta A. Your queries are replied hereunder: Service tax is payable under clause (90a) of Section 65 of the Finance Act, 1994. The relevant ingredients of the definition contained in the aforesaid Section are as under: Renting by any arrangement is covered. Renting must be for use of a specified purpose, viz., furtherance of business or commerce. Renting by or to a religious body is excluded. Renting to an educational body other than a commercial training or coaching centre is excluded. Allowing or permitting the use of space without transferring of possession or control is considered as renting. In Home Solution Retail India Ltd. vs Union of India [2009] 20 STT 129, the Delhi High Court held that renting of immovable property for use in course of furtherance of business or commerce by itself does not entail any value addition, and therefore, could not be regarded as a service. Accordingly, the Hon’ble Court held that no service tax is leviable. Finance Bill, 2010, proposes to amend the definition in retrospective from June 1, 2007 by expressly providing that the activity of renting is a taxable service. Accordingly, service tax would be payable on the aggregate amount of rent. Presently, service tax registration is done online. The web-site address is http://www.servicetaxonline.com. The procedure for registration of service-tax is as under. Create a user ID and provide the e-mail address where a password shall be provided to you for further login. With the use of user ID and password login to the relevant site. ST-1 form is available there in the tab of REG. Fill the form along with all the relevant details like range, jurisdiction etc. These details can be easily searched from there. After filling up the ST-1 form, upload the same. An acknowledgement will be generated. The print out of acknowledgement and ST-1 along with all the required documents shall be submitted with the relevant authority. List of documents to be submitted will be given below the ST-1 Form. If the person himself is not going to deposit the same then a valid power of attorney is required in the name of authorised representative. Other documents in case of an individual are as mentioned below: Identity and address proof Copy of PAN for a PAN based service tax number. The provisions of Section 2(24) of the Act dealing with the deductions from ‘income from house property’ do not contain any clause whereby service tax can be claimed as a deduction against such income.
When rent paid is more than the HRA received
Q. I and my husband are both salaried employees. I get Rs 750 per month as HRA (Rs 9,000 per annum), and my husband gets Rs 2,000 as HRA per month (Rs 24,000 per annum). We are living in a rented house, and are paying Rs 7,500 as rent per month (Rs 90,000 per annum). My query is that can we both claim rebate in income tax as our combined HRA is less than the rent that we are paying to the landlord? — Dr Shikha Malik A.
Your queries are replied hereunder: The deduction in respect of HRA is allowable in case an assessee has actually paid the rent for the house occupied for the purposes of his residence. In view thereof, it would be advisable that both you and your husband pay rent to the landlord so that each one of you can claim the deduction. The deduction in respect of house rent allowance is to be computed in accordance with Rule 2A of Income-tax Rules 1962. The permissible deduction in accordance with the said rule has to be computed in the following manner: The actual amount of such allowance received by the assessee in respect of the relevant period; or The amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him/her exceeds one-tenth of the amount of salary due to the assessee in respect of the
relevant period; or An amount equal to – Where such accommodation is situated in Mumbai, Kolkata, Delhi or Cheenai, one-half of the amount of salary due to the assessee in respect of the relevant period; and Where such accommodation is situated at any other place, two-fifths of the amount of salary due to the assessee in respect of the relevant period. Whichever is the least of (a), (b) and (c). You can compute the amount that each one of you should pay to the landlord so as to claim the permissible deduction in accordance with the aforesaid Rule. An assessee is entitled to a deduction of tuition fee (excluding any payment towards any development fee or donation or payment of similar nature), whether at the time of admission or thereafter to any university, college, school or other educational institution situated within India for the purpose of full time education of the assessee himself and any of his two children. The deduction so allowable is within the overall limit of Rs 1 lakh provided for in Section 80C of the Act.
Joint home loan
Q. I am planning to take a home loan jointly with my wife to purchase a flat. Kindly advise me if the stamp duty and registration charges are included in the house cost. What are the IT benefits i.e. on stamp duty etc. and loan repayment? And also what is the best way to give EMI’s to bank to get IT benefit for both of us as both of us are salaried government employees. — A.K. Singal A.
The answers to your queries are as under: The expenditure incurred on the stamp duty and registration charges forms part of the cost of the house. Section 80C of the Act provides for the deduction of amount paid towards the repayment of any loan borrowed from the bank/financial institutions/public company/co-operative society engaged in the business of providing finance for the construction of houses. The maximum limit of such deduction is Rs 1 lakh including all other payments/deposits specified in the aforesaid Section. Stamp duty and the registration fee and other expenses for the purposes of transfer of the house property are also covered for the purposes of aforesaid deduction. The deduction can be claimed by both you and your wife in case the house is owned jointly. As the amount is borrowed by both of you, and the repayments towards the loan so obtained are also made separately by both of you. I may add that it will be better to get the EMIs fixed separately for each one of you so as to avoid any problem in this regard.
Distance formula
Q. I would like to know how the distance is measured from the corporation limits for the purpose of determining rural/urban agricultural land. — Aniket Garg A.
Section 2(14) of the Income-Tax Act 1961 (the Act), which defines the term ‘capital asset’ does not provide any guidance with regard to the procedure for measuring the distance. The notification issued by the Government of India is also silent regarding the procedure for measuring the distance for ascertaining whether the land is rural or an urban agricultural land. However, the most appropriate method, in my opinion, should be the measurement of distance by road. The reason for coming to this conclusion is the language used in the notification which specifies “areas upto a distance of __x____ kilometers from the municipal limits in all directions”.
The writer can be contacted at sc@scvasudeva.com
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GROUND REALTY Jagvir Goyal Installation of elevators, popularly called lifts, is no longer limited to multistoreyed buildings, multiplexes, malls, hospitals and group housing societies. One can see these even in foodcourts and individual residences. Technically, an elevator needs to be chosen carefully. The mere look of the ‘car’ for the passengers’ ride shouldn’t be the deciding factor. Here are a few guidelines: Work out the requirements: Consider the following factors while choosing an elevator. Required capacity of the elevator. Frequency of use. Type of use. Whether the elevator is to be used for commercial or residential or industrial purpose. Travelling distance. It decides the type and speed of the elevator. Speed can be kept as less as 1 metre per second or as high as 10 metres per second. Type of the ‘car’ or ‘cab’. Whether you want a transparent cab to have the outside or an enclosed cab. Choose the mechanism
An elevator can be run in a number of ways. One method is to use the wire ropes and sheave pulleys. Second method is to run it hydraulically. Third method is to run the elevator electrically. Fourth method is to run the elevator fully automatically through computer and microprocessor controls. These days, mostly, the third and fourth types of elevators are used.
Choose the elevator
company
Many elevator suppliers are there in the market but only a highly reputed one should be chosen as no risk can be taken in case of providing a ‘lift’. Choose a company that provides excellent post sale service. Check the track record of the company. There should be no accidents. Check that all components of the elevator are subjected to ‘destruction test’
While safety, reliability, cost-effectiveness, post sale service remain the basic requirements, look for the following features also—
Look for microprocessor-controlled elevator. A microprocessor takes complete control of an elevator, is programmable at site and can handle subsequent modifications. Apart from the illuminated push buttons for up and down signs and the floor numbers, the elevator must display the capacity in kg and maximum number of persons who can ride the car.
The door
Look for automatic door system. See that it is equipped with infrared door protection system. In this system, invisible infrared rays detect a person or an object in the doorway in a split second and automatically reverse the movement of closing doors.
Public address system
A public address system is essential for communication in case of emergency like fire, car getting stuck or power failure. In addition, some companies provide an automatic rescue device in the elevator.
Biometric system
Biometric system in lifts is becoming quite popular these days. Passengers are identified by the elevator through their finger prints. Other identification methods like using a PIN number or a badge are also available on the elevators.
Speed variation
Choose single speed or two speed elevator for low rise and high rise buildings, respectively. In high rise buildings of 30 storeys and above, faster speed will be required.
Energy saving
Look for gearless drive system for running an elevator. This system requires no maintenance and lubrication. The bearings of the gearless machine are permanently sealed. This drive system helps in saving of electricity by 30 to 40 per cent. Choose an elevator that requires less starting current. It will help in choosing a smaller back up generator.
Weight of elevator
Look for an elevator that is fabricated by using strong but low weight materials. Low weight of elevator will help in power savings to the user.
Sign an agreement
Sign a warranty and annual maintenance contract with the
elevator company. Often, promises are many, factual maintenance visits a few.
Structural requirements
An elevator needs a duct for travel of the car. The inner dimensions of the duct should suit the size of the car. If the car dimensions are 1200 mm X 900 mm, the duct should be around 1600 mm X 1500 mm. Decide these dimensions in consultation with the elevator company. Follow these steps and enjoy a happy ride! (This column appears fortnightly)
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While having a home of one’s own is a dream nurtured by hundreds and thousands of people, home loans offer an easy way to make that dream into a concrete reality. But the way to get that loan is no cakewalk as it is nothing less than a maze of interest rate calculations and ‘good deals’ which leave many confounded and confused. Floating interest rate, fixed interest and now the teaser interest rate — the offers are many and one is at a loss to decide which one is the best suited to one’s requirements.
GROUND
REALTY
Cement and steel are the backbone of buildings and infrastructure development. Thus selecting the right type of cement is very important for any construction. A large variety is available in the market and generally little attention is paid to the type of cement that is picked up for construction. Today I am writing about the cements being manufactured in India. Three types of cements are being manufactured in India to cater to the needs of
different industries.
Is this sales tax payable in respect of the company only, paying Rs 1,00,000 per month or also for tenants paying Rs 5,000 per month?
One more query is that how much is the limit for which an individual can claim rebate on the expenses incurred on the education of his child, including tuition fees, development fees, books and stationary charges as well as the transportation fees paid to the school authorities.