Realty zooms in Rohtak
The Rohtak area is no longer a poor cousin of Delhi and NCR. Several ongoing development projects have increased the realty quotient of the area, writes Bijendra Ahlawat

After the real estate success stories of Noida and Gurgaon, it seems to be the turn of the Rohtak region to ride on the realty high tide. Several ambitious projects and schemes have stirred up the realty scene in this region with investors and realtors both realising the golden potential of the area.

Snapshots of fast-paced development that is taking place in and around Rohtak. New residential projects, Industrial Model Township project and improved road network have given a boost to the realty sector here Photos Manoj Dhaka

Price hike

Property prices in Punjab are likely to go up by up to 20 per cent, with the imposition of a new levy by the local government for approval of upcoming residential or commercial projects in municipal areas coupled with high input cost.

“Besides increase in input cost, the new charges imposed on residential and commercial projects (by the Department of Local Government) will definitely impact the property prices in Punjab...we think prices will go up by 10 to 20 per cent in the state,” Confederation of Real Estate Developers’ Association of India (CREDAI-Punjab chapter), General Secretary Amardeep Singh Heera said.

The Department of Local Government, Punjab, in a recent notification imposed Processing Fee (PF), External Development Charges (EDC) and Change of Land Use (CLU) for real estate projects falling in municipal areas across the state in order to augment the financial resources of Urban Local Bodies(ULB).

As per the notification, the department has imposed a fee of minimum of Rs 1 lakh per acre (4,840 sq yd) to the maximum of Rs 15 lakh per acre on residential projects depending upon areas under municipal authorities across the state.

Maximum charges have been levied on Dera Bassi, Zirakpur, Kharar and Banur, which are situated on the periphery of Chandigarh. According to property analysts “heaviest” charges have been levied upon new commercial projects starting from Rs 10 lakh per acre to Rs 1.30 crore per acre. Besides, these charges would be enhanced by 10 per cent every year by the state authorities.

Earlier charges between Rs 2.5 lakh and Rs 3.5 lakh per acre in the form of development fee were being charged by municipal councils or corporations across the state for the residential and commercial projects, they said.

Real estate developers, who are dealing with spiralling input costs, say the move will impact their margins.

According to developers, cement prices have shot up by Rs 25 per 50 kg to Rs 275 while rates of bricks have jumped to Rs 4,500 per truck from Rs 3,500 per truck three months back.

Steel prices have increased to Rs 42 per kg from Rs 30 per kg four months back. A few developers have already started increasing the rates of their projects in the state. “I have already raised the price of my flats (100 square yards) in Kharar from Rs 16 to Rs 18 lakh and will further raise rates to Rs 21 lakh next month,” said a Kharar-based real estate developer. — PTI

GROUND REALTY
Sterling stones
Jagvir Goyal

A lot of choice is available in the market as far as the choice of materials for flooring, walls and roofing is concerned. A number of ‘new-age’ materials are being used by builders but ‘stones’ continue to remain the final choice for a vast majority of people. Two factors are responsible for this. Firstly, stones are natural materials and people believe more in using natural materials than the synthetic ones. Secondly, these are sturdy and durable. Let’s have a look at the various stones that are used in buildings:

Marble

Indians have a fascination for marble. In spite of the availability of so many other flooring materials, the use of marble has not declined. Makrana marble has become world famous. Makrana White is considered to be the best marble and remains the most preferred one. Its shine increases with time. First quality white marble is available in Doongri and Bhat. Though marble looks strong and impregnable, actually it is a porous material. Marble that has low porosity, high density and hardness is considered to be good. The density of good marble is about 2800 kg/cubic metre. Its water absorption after 24-hour immersion in water should be less than 0.4% of its weight. Though white marble is preferred the most, pink, green, brown, grey and even black marble is also used for flooring.

Marble slabs vary in thickness and may be up to 150 mm thick. The cost of marble depends on its thickness. Slabs with 25 mm thickness are normally considered strong enough for use in buildings. The size of marble slabs may vary from 1 ft x 1 ft to much bigger. Marble tiles smaller than 1 sq. ft area look odd and bigger slabs cost more. Therefore, the size of marble slabs should be chosen as per the budget set aside for it. However, all slabs should be of the same size only. The slabs shouldn’t carry any pinholes or hair cracks in them. Pay special attention to edges and angles of the slabs. No slab should have curved edges. All edges must be truly straight and all four angles should be perfect right angles.

Granite

Granite has been used extensively in domestic and commercial sector during the past decade in spite of its high cost. The main reason for its popularity is its availability in a variety of colours. It is also very durable.

While choosing granite, the first thing to decide is whether you want textured surface granite, a plain-looking one or the one with lines or waves in it. Dark-coloured black granite is usually preferred over the textured one. Good quality granite will have no discoloured patches in the slabs. The buyer should also ensure that there are no hairline cracks or pinholes in the slabs. To check the colour rub the granite surface with a piece of cloth dipped in kerosene oil or petrol. No colour should appear on the cloth after it is rubbed on the slab. If some colour appears, then it means that industrial oil has been rubbed on the slabs by the stone dealer to intensify the colour. Such slabs will lose their colour in one or two months and so these should be rejected. This problem is generally faced in light shade black granite. Choose granite that is genuinely dark coloured. The hardness value of granite shouldn’t be less than 90. Granite slabs are classified as Grade I, II and III depending upon the flatness of the surface.

Granite has found best use in kitchen counter tops and staircases. Architects often strike a judicious combination of granite and marble by devising a colour combination to present aesthetic and artistic interiors.

Jaisalmer stone

Cost effective and durable Agra Red stone is usually selcted for wall cladding

Jaisalmer stone, too, has found selective use in many buildings these days. The stone is known for its eye-catching yellow colour and perfect finish. The thickness of slabs may vary from 15 mm to 600 mm. It is available in many tile sizes, varying from 1ft x 1 ft to 2 ft x 3 ft. It is machine finished on one or both sides, as per the requirement of the user. It can be used by retaining its natural appearance or one side can be sawn or sandblasted or honed or brush-finished.

Care should be taken to ensure that the stone slabs are free of veins, cracks or spots and have a uniform colour. It can be single polished or double polished. Single polished stone should be used for paving work. The Jaisalmer stone is finding main use in flooring and paving work, though it has also been used for wall cladding and window sills.

Dholpur stone

Dholpur stone was used extensively in buildings a decade back mainly due to its pinkish/peach appearance and durability. However, now its popularity has decreased as many new materials are available in the market. Dholpur stone is extracted in the form of blocks which are split forcibly into slabs with rough surface.

It has water absorption of only 0.5 % by weight. It is available in white colour also and has minor purple veins that become visible when it is wet. At present it is being used for steps, kerb stones, flooring and wall cladding.

Kota stone

Kota stone is also extracted from mines around Kota in Rajasthan. It is bluish, greyish, brown, green and red in colour. It is also finding a noteworthy use in houses these days as it is economical but looks chic.

Greenish or greyish Kota stone tiles look the best. Always choose the lot carefully. There should be minimum colour variation in the lot. Apply water to the stone tiles to check the colour variation. Pre-polished as well as rough Kota stone tiles are available in the market. Choose pre-polished tiles though polishing will be finally completed in-situ only.

Kota tiles of size 575 x 575 mm should be preferred. Also see that the tiles are machine-cut and their edges are dressed for full thickness and not at the surface only. Choose thickness not less than 32 mm for floors and not less than 20 mm for stairs, skirting and wall area. Kota stone tiles are usually not cut to true right angles. These, therefore, need to be set to right angles at site by making a mould of the tile size on the ground. This results in some edge cutting of the slabs. This wastage should be kept in mind while buying Kota stone slabs.

Kota stone has found best use in courtyard paving, staircases and corridors of commercial buildings and institutes and in many cases for flooring of the interiors also when it is not possible to invest in marble or tile flooring.

Red stone

Once it ruled the forts and palaces of North India. Agra Red stone is produced in UP and Rajasthan and is often used in paving work, pool-sides and wall cladding of buildings.

It has a coarse, sandy and granular texture as it is basically from the sandstone category. Its cost effectiveness, red colour and good strength often make people select it for wall cladding.

It is supplied in 12 mm to 40 mm thick tiles. Tile size available is 8 inch x 12 inch to 2 ft x 2 ft.

Gwalior white

Gwalior white is increasingly becoming popular in metros these days. Architects prefer its combination with wood or wood-based products to produce beautiful building facades. Gwalior white is, thus, being extensively used for building exteriors. The main reason behind its increasing use is its very smooth natural surface. It is also called Gwalior Mint. Used in thickness of 15 mm to 22 mm, it can take good polish on exterior face and can be provided in the shape of tiles or slabs. Normally, the tile size is 1ft x 1 ft to 2 ft x 3 ft and slab size is 2 ft x 6 ft.

The stone lot chosen should show no signs of de-lamination when subjected to sulphuric acid immersion test. Gwalior white stone cladding costs around Rs 70 per sq. feet. Some architects are using Gwalior White tiles after making them rough by sand blasting or hammering instead of keeping them smooth faced.

(This column appears fortnightly)

REAL TALK
Healthy demand in luxury housing

Manoj Kumar

The M2K Group has given the Capital several multiplexes and housing projects like White House, Symphony Floors M2K County at Dharuhera, M2K Corporate Park Shopping Plaza, and Victoria Gardens. “Our endeavour is always to provide product differentiation and value for money to the customer”, says Manoj Kumar, Vice President (Marketing), in an interaction with Tribune Real Estate. Excerpts:

What are your expectations from the real estate sector in the new decade?

The economy as well as the buying capacity of individuals is increasing. Demand is very high but supply is comparatively less so we are expecting a very good boom in this sector in the next few years.

Prices in all the major cities, especially in Delhi-NCR, have risen to the pre-slowdown levels. What will be the effect of this on property sales?

Prices in all major cities, especially in Delhi-NCR, are increasing because of the increase in input costs like the cost of land, material, labour and construction. If you consider the demand and supply ratio, the demand is very high. Thus the customers are ready to pay the price that is being quoted and sales are going on well.

Your group has built several luxury projects, how is the luxury development demand and supply scenario in Delhi?

Luxury development demand has always been there in the market and it will remain there for a long period because this is a totally different segment of buyers. As far as the Delhi-NCR part is concerned, the supply is very less in this particular segment and a number of projects that have been launched off late will surely receive a good customer response.

You have projected land title part as the major USP of your new project, Victoria Gardens, in Delhi, how are the buyers going to benefit from this clause?

Unlike other projects, ours is a freehold property purchased from National Textiles Corporation (NTC). What this entails are the following:

Lifetime ownership over the property. No 90-99 year lease restriction, and therefore no uncertainty over renewal after the expiry of lease period and no need to shell out any additional money for renewal of the lease or for converting the property to freehold which could range from 15–50% of the property cost.

No outflow in the form of the annual lease rent every year to any government/land allotment agency

Is the revival of the realty market well rounded, Is the growth and demand in residential and commercial segments equal?

The realty market has revived quite well. The growth and demand in residential as well as commercial sectors is always parallel. That means if the demand in the residential sector increases, the commercial sector demand will also increase proportionately.

Which are your major forthcoming projects in the region?

Our Major forthcoming project is M2K Corporate Park retail-cum-office space in Gurgaon. We are coming up with two residential projects and one commercial one in Sector-102, Gurgaon. We also have an integrated 100-acre township project in Dharuhera in the pipeline.

— As told to Geetu Vaid

LAUNCH PAD
Metropolis Tower

Real estate firm Metropolis Landholdings with Expertise India will invest Rs 30 crore in its upcoming project — Metropolis Tower — in Amritsar.

‘’Metropolis Tower will be a very lucrative investment as the state government is planning to infuse Rs 3,150 crore to modernise the city of Amritsar and is also planning to open free trade zone in the city soon,’’ Metropolis Landholdings Managing Director Rajan Gill. He said the company has acquired land for the project and construction will begin in another 15 days.

The project, which consists of 55 studio apartments and a mall, will be ready in the next 24 months, he added. The studio apartments will be priced at Rs 4,500 per sq ft and the commercial area will cost Rs 8,500 sq ft. The company has already sold 28 studio apartments. Speaking on the occasion Gill said the company would soon come up with a 200-room five-star hotel in Amritsar.

Nitesh Mall

Bangalore-based property developer Nitesh Estates Ltd. has announced the launch of Nitesh Mall, in the up-market Indiranagar in Bangalore. The Rs 500-crore project is being designed by retail design firm Callison of Seattle. The mall will have parking facility for 1,800 cars. Announcing the launch, Ashwini Kumar, Chief Operating Officer of Nitesh Estates said, “Nitesh Mall is going to be a one-stop-shop for all well-known brands. The mall is strategically located to offer good connectivity to upcoming largest metro in Bangalore”.

Office-cum-home

Vigneshwara Developers have launched Smart Office Home Office (SOHO) project in Sector 74 of Gurgaon to meet the new found needs of Indian realty and infrastructure industry. SOHO will offer a rare blend of working and living at one place. Equipped with high-end technological equipment, elegant décor and all that goes in the name of comfortable living, SOHO comes with a 3G (third generation) experience, which includes tele-presence, virtual office and access to helipad. Added services like laundry, house-keeping and room service, along with recreational facilities will also be available here.

Speaking at the launch of SOHO, Sunil Dahiya, Managing Director, Vigneshwara Developers, said, “Gurgaon has emerged as a destination for opportunities, business and great paying jobs, and people come here from the world over and different parts of the country. There is a huge demand for tenancy and good opportunity for investors to own residential-cum-office spaces. SOHO, in fact, is a void that Vigneshwara is seeking to fill to cater to the needs of tenants and interests of investors. With this project we aim to bridge the gap between the residential and commercial.”

HDIL announces Cyber City

Housing Development and Infrastructure Limited (HDIL), one of the largest real estate companies has launched their Cybercity project at Kalamassery near Kochi.

The promoters of the project, Blue Star Realtors Private Limited, 100 per cent owned subsidiary of HDIL will invest approximately Rs 2300 crore in the project for which the state government had granted necessary clearances and SEZ status by Centre.

The project will be a state-of-the-art built up space of about 10 million square feet on 70 acres at Kalamassery Special Economic Zone.

State Industries Minister Elamaram Kareem inaugurated the commencement of the project. Announcing the commencement of Cyber City, Rakesh Kumar Wadhawan, Chairman, HDIL said “Kochi has emerged as one of the top IT/ITES commercial real estate destinations. The project is expected to generate 60,000 new direct jobs.

— As per information provided by the developers

Banks get tough with developers
S.C. Dhall

Banks are getting tough with developers of commercial projects such as office buildings, malls and shopping centres. Builders seeking fresh loans have been asked to meet more stringent conditions. The move is being seen as fallout of the corporate loan scam that came to light last year. Warning bells had started ringing when several developers struggled to repay their loans during the slowdown.

Several commercial real estate projects had been stalled due to the poor economic health of the sector. Bankers' worries increased manifold when in November 2010, the Central Bureau of Investigation nabbed eight senior officials of State-owned banks and other financial institutions for irregularities in lending to builders.

The RBI had been warning banks about the high-risk nature of the realty sector, terming it a "sensitive sector" like capital markets and commodities because of frequent price fluctuations.

According to reports from the banks very few commercial real estate projects have been launched in the past couple of months and banks have not approved many fresh proposals in the past one-two months. Most banks are hesitating to release even the sanctioned money. Bank loans constitute at least half of a developer's borrowings.

Already, starved of funds from this key source, the developers are resorting to other measures to generate funds to repay bank debts. These include selling land, pre-sales from projects, rental income from office buildings, institutional borrowings, and money from public share sales.

The exposure of Indian banks to the real estate sector was about Rs 6 trillion on December 31, 2010, accounting for nearly 17 per cent of their advances. Of this, around Rs 15,000 crore is repayable by the end of March 2011.

Bank lending is crucial for the real estate sector and if banks tighten lending rules then it will up the borrowing costs for developers. This is bound to have a trickle down effect on the pricing of the end product.

Typically, advances to commercial real estate projects form only a small part of a bank's loan book due to the higher risk weightage for such lending. Even for residential property, a segment that has fared relatively better, RBI has announced a slew of measures in its November policy. These include a cap on the loan to value ratio at 80 per cent and a higher risk weightage for loans above Rs 75 lakh at 125 per cent. Banks typically lend to commercial real estate projects at 13 to14 per cent on five to 10 year tenures.

RBI has asked banks to put in place an escrow mechanism that can ring fence their loans to real estate firms and keep a closer tab on the end use of funds. An escrow account will help in safeguarding the interests of the lenders from repayment risk and in monitoring the end use of funds.

An escrow account is a trust account in the borrower's name. Payments from the customers of the borrower are deposited in this account to meet obligations, such as loan servicing. Besides the timely implementation of project, the move would ensure transparency in fund utilisation.

The escrow arrangement suggested by RBI will be operationalised through a tripartite agreement between the developer, the banker and the buyer.

The mechanism is also expected to address the concerns of buyers who are wary of investing in start-up projects.

The escrow mechanism will ensure that the flow of funds is based on pre-agreed milestones. This will help in avoiding delay in the completion of a project.

Décor core
Acrylic Grace

IDUS furniture has launched a collection of Acrylic furniture in India. Acrylic is highly transparent material with excellent resistance to ultraviolet radiation and weathering. It can be coloured, moulded, cut, drilled, and formed. “Acrylic furniture is stronger and is more durable as compared to the traditional furniture. People living in areas that have high moisture levels prefer acrylic furniture because of its capability of handling moisture without getting affected. It can be wiped with cloth to remove the dirt, grease and stains. This is not possible in case of wooden furniture because it gets stained and damaged,” says K. Sameer Hora, Director, IDUS Furnitures.

One can also customise one’s furniture collection by mix-matching it with wooden furniture. The standard size starts from 2 ft x 2 ft and can be customise according to the requirement of customers. The price range of this furniture is between Rs 13,000 and Rs 28,000.

INVESTMENTS & VENTURES
Unitech to pump in 1,500 cr

New Delhi: Realty major Unitech will launch 10 million sq ft of area in next four months, at an estimated construction cost of Rs 1,500-2,000 crore. “We will launch various projects across the country with a saleable area of 10 million sq ft. The majority of the projects would be mid-segment housing,” a senior company official said.

The company would incur a cost of Rs 1,500-2,000 crore over the next three years on construction of 10 million sq ft of area. In a presentation to the investors, Unitech said it has sold 7.9 million sq ft of area in the first nine months of this fiscal for Rs 3,348 crore.

The company is targeting to sell 10 million sq ft of area at a sale value of Rs 5,000 crore, it added. Unitech has posted a 36.73 per cent dip in consolidated net profit for the October-December period of 2010 at Rs 111.36 crore due to losses incurred by disposal of a capital asset.

The company reduced net debt in realty operations by Rs 555 crore to Rs 4,617.47 crore, as on December 31, 2010.

— PTI

Parsvnath to invest Rs 4,700 cr in ongoing projects

New Delhi: Realty firm Parsvnath Developers will invest nearly Rs 5,000 crore over the next three years to complete its existing projects and expects a sales realization of over Rs 14,000 crore.

The company, which reported a 26 per cent rise in consolidated net profit at Rs 31.37 crore for third quarter of this fiscal recently, plans to cut its debt to Rs 500-700 crore in 2011 calendar year from Rs 1,141 crore as on December 31, 2010.

“We are currently focussing on execution and delivery of 54 projects with a total salable area of 80 million sq ft,” Parsvnath Developers Chairman Pradesh Jain told reporters.

Out of 80 million sq ft area, the company has sold 42.5 million sq ft and targets to sell the remaining area in the next 24-36 months. “We expect a sales realisation of Rs 14,280 crore in the next 36 months, out of which Rs 4,000 crore is outstanding amount from Pre-sold area,” Jain said.

When asked about the investment, he said the company would require another Rs 4,700 crore on completion of 80 million sq ft. Parsvnath has reported 26 per cent rise in consolidated net profit for the third quarter at Rs 31.37 crore against Rs 24.91 crore in the year-ago period. This was mainly due to fall in tax expenses to Rs 17.85 crore from Rs 29.37 crore in the review period.

The total income during the December quarter, however, fell by 26.51 per cent to Rs 224.36 crore from Rs 305.29 crore in the year-ago period. Jain attributed the decline in revenue to the company’s strategy of focusing on existing projects and not launching new projects. On debt, he said the company would reduce the debt to Rs 500-700 crore by the end of 2011.

Parsvnath has a land bank of 193 million sq ft, which is spread over 44 cities in 15 states. Jain said the company might consider selling its projects in South India if there was a good opportunity. — PTI

Better deal sought for affordable housing

Industry chamber Assocham has asked the government to re-introduce the tax exemption scheme to promote affordable housing in the forthcoming Budget.The chamber also said real estate sector should be accorded infrastructure industry status to allow easier access to loans for its activities.

In a letter to the Finance Minister, Assocham Chairman (Real Estate Committee) Navin Raheja said tax incentives under the Section 80IB(10) of the Income Tax Act “must be extended by at least five years”.

“The realty firms must be encouraged through fiscal incentives to construct small dwelling units at affordable prices, which should go a long way in uplifting the social status of Aam Aadmi,” he added.

In the 2010-11 Budget, the government had announced one-time interim relief to the housing and real estate sector by allowing builders to complete affordable housing projects in five years instead of four years to claim deductions on profit under Section 80IB(10) of the Income Tax Act.

However, this extension is available for housing projects approved on or after April 1, 2005. Under the existing provision of Section 80IB(10), 100 per cent deduction is allowed to developers to build affordable housing projects, provided the project is sanctioned before March 31, 2008.

Raheja also said that the sector should be accorded long pending status of an industry forthe purpose of availing long term and short term finances like other industries.

“The definition of ‘infrastructure’ earlier used by the government and all financial institutions allowed for funding of townships and residential/commercial buildings. This seems to have got de-linked and branded as real estate during the time when land and property prices were spiraling,” he added.

The chamber also asked the government to help in purchase of land to develop houses for economic weaker section and low income group.

Besides, Raheja said the government should increase the tax saving limit on payment of interests on home loans to at least Rs 2.5 lakh from the existing Rs 1.5 lakh. — PTI

TAX TIPS
Investing sale proceeds abroad

Q. I am an NRI, and am currently in Chandigarh. I am interested in selling my house in India and take the money to USA as I want to buy a house and set up business there. The house is in the name of my brother and mother. I am being offered Rs 3.3 crore for the house of which, I have been told, Rs 1.3 crore will not be subject to the capital gains tax. The property that we have chosen in USA costs about Rs 1.65 crore ($ 1 = Rs 47). I want to invest the rest of the money in a business with some financing.

My queries are:

How much of the total amount will be exempt from long term capital gains tax if we buy the residential property in USA?

l  In which order do we need to do complete the purchases in USA, i.e. house first and business later or vice-a-versa?

l  What would be the role of CAs from India and/or USA in this?

— Roopinder Randhawa

A. Your queries are replied hereunder:

l  The capital gain arising on the sale of a residential house can be utilised for the purchase of another residential house within a period of one year before or two years after the date of such sale. The question with regard to the purchase of a residential house property outside India is not free from doubt as there are conflicting decisions on this issue. Mumbai Bench of ITAT in Mrs. Prema P. Shaw vs. ITO (100 ITD 60) has held in favour of this proposition on the basis of provisions of Section 54 of the Act. However, Ahmedabad Bench in case of Leena J. Shah vs. ACIT Baroda (6 SOT 721) has held that the benefit under Section 54F of the Act would be allowable only if the property is purchased in India. Section 54F of the Act applies to the utilisation of net consideration arising on the sale of a capital asset other than the residential house towards the purchase/construction of a residential house. In Leena J. Shah's case the Hon'ble Tribunal relied on the circular of CBDT issued at the time of introduction of the Section 54F of the Act which stated that the Section is being introduced to encourage the construction of houses. No such circular exists in case of Section 54 of the Act. In view of these two conflicting decisions, the purchase of house in USA may involve litigation.

l  In case you would like to take a chance of purchasing a house in USA, the house should be purchased within one year before or two years after the date of sale of your Chandigarh house. In case you are not able to purchase a house before the due date of filing the tax return, the unutilised amount should be deposited in a bank under the capital gains scheme. The amount so deposited will have to be utilised for the purchase of a residential house property. You can, therefore, decide the order of completing the purchase in USA on the basis of the time limits suggested herein above.

l  The chartered accountant in India would help you in getting your tax assessment completed in India as well as for the remittance of funds abroad. You would need the help of a chartered accountant in USA as and when you intend to start your business in USA.

No deduction during construction period

Q. I have purchased a flat at Noida. It is under construction and possession will be given in 2013. I have taken a loan from bank. Can I claim deduction in respect of the principal and interest components of the EMI before taking possession of the flat? I request you to clarify the rule position on tax benefits due to loan repayment.

— Manish Khatri

A. In accordance with the provisions of Section 80C of the Act, a deduction is allowable within the overall limit of Rs 1 lakh in respect of the repayment made towards the amount borrowed from a bank for purchase or construction of a residential house, the income of which is chargeable to tax under head "Income from House Property" or would have been so chargeable if it had not been used for assessee's own residence. It may, therefore, not be possible for you to claim such deduction during the construction period.

The deduction in respect of the interest paid or payable on a house building loan is allowable against income from house property. The interest paid/payable in respect of the amount borrowed for the period prior to the year in which the property has been purchased or constructed is allowable in five equal installments starting from the year in which the house is acquired or constructed. In view thereof, the first installment of the interest paid or payable for the prior period would be allowed as deduction against income from house property for the financial year 2013-14 i.e. when the possession of the property is handed over to you.

House rent deduction

Q. Under what circumstances is the house rent paid by an assessee deductible from his total income?

— Nitin

A. Section 80GG of the Act provides that in computing the total income of an assessee, who is in receipt of house rent allowance, there will be a deduction of any expenditure incurred by him in excess of 10% of his total income towards the payment of rent used for his own residence to the extent to which such excess expenditure does not exceed Rs 2000 per month. This deduction is, however, subject to the following conditions:

l  The assessee or his spouse or his minor child or where such assessee is a member of a HUF, does not own a residential house at the place where he/she ordinarily resides or performs duties of his office of employment.

l  The residential house owned by the assessee at any place other than the above, though in his occupation for his own residence, cannot be occupied owing to his employment, business or occupation carried on at any other place and the assessee has to reside at that other place in a house not belonging to him.

l  The deduction is limited to a maximum amount of Rs 2,000 or 25% of the total income, whichever of the two is less.

l  A declaration in Form 10BA is filed along with the return of income. 

Not entitled to claim deduction

Q. I am working in a bank and am at present posted in Chandigarh. I have taken loan for buying a plot in Mohali, and I intend to construct a house there in a year or two. Am I entitled to claim deduction for the amount repaid towards the loan so raised?

— Rajiv

A. Section 80C of the Income-tax Act, 1961 (The Act) provides that in computing the total income of an individual or a HUF any payment made towards or by way of repayment of a house-building loan from a bank will be deducted. The allowable deduction is within the overall limit of Rs 1,00,000 as specified in the aforesaid Section.

In view of the above, you are not entitled to claim a deduction in respect of the payment made towards the repayment of the loan raised for the acquisition of a plot. 

Co-applicants’ share

Q. My son has taken a home loan from a bank. Besides my son, me, my wife and our daughter-in-law, are co-applicants of the loan. The plot for which the loan has been taken is in my name, while the EMI is being paid by my son. Kindly clarify:

l  Can my son claim rebate in income tax

l  If yes, then how much

l  Can the co-applicants also claim rebate proportionately

l  Is it necessary to transfer the said property in the name of my son.

— Manmohan Singh

A. Deduction under Section 80C of the Act in respect of repayment towards home loan is allowable to an owner of the house. You have indicated in the query that you are the owner of the plot. The presumption, therefore, is that you would be the owner of the house as well. In such a case, the deduction envisaged under Section 80C would be allowable to you only.

In case the house is owned by all the four applicants, deduction shall be allowed to all the four applicants to the extent of their share in the amount of borrowing made by each provided the repayment has also been made by such applicants.

Buying houses in two cities

Q. Please clarify the following :

I had purchased a flat in 2002-03 for Rs 9 lakh and had spent around Rs 2 lakh in changing the flooring and making other improvements in the flat. I intend to sell the same in FY 2011-12 for Rs 55 lakh. I want to buy two houses/flats in two different cities from the sale proceeds. What is the right way to go about this?

— Sudhir Sharma

A. The provisions applicable in your case are contained in Section 54 of the Act. As per these a long-term capital gain arising from the sale of a residential house property will be exempt from tax provided the capital gain so arising is utilised for the purchase/construction of a new residential house property within the specified period. Though the aforesaid Section uses the words 'a residential house property', courts have also held that the exemption under the Section is not limited to the acquisition of one house property. As against this there is a Special Bench decision of ITAT in which it has been held that the exemption should be allowed in respect of one house only. In view of this, you may claim the exemption in respect of capital gain arising from the sale of residential flat provided the two flats are purchased within two years after the date of sale of the residential flat. The claim so made may lead to litigation and you should be prepared for it.