The Tribune, Chandigarh, India

Think before purchasing your dream house
Nitin Saxena

To own a house is the dream of every common man. Some members of our Society have a sentimental values towards possessing one’s own house, specially as a shelter for old age and for some others investment in real estate is a business propositions are encased upon by the builders and property developers.

Most young couples do not think about the house they want to buy as a place to spend their retirement. They equate buying a house with making an investment. Now that banks and other independent agencies are giving credit on easy terms people even in their late 20s and early 30s plan the purchase of a house. Encouragingly, the government is providing new concessions to promote the housing sector. For instance, it has substantially raised the income tax limit on loans for house building. Such benefits rejuvenate the economy by encouraging core sector industries such as cement and steel and they also provide employment.

After the favourable tax benefits proposals in the recent Budget, the finance companies are giving lot of attractions to the individuals to avail housing loans. But before approaching finance companies. The following documents are required. Mainly two categories in which this documents can be divided. Category one relate to property for which you want the loan and category two to include personal documents.

Property documents requirement for flats

(a) Copy of building plan sanctioned

(b) Attested copy of agreement of sale along with detailed title investigation report

(d) Allotment letter showing flat site estimate cost where co-op. Society is a registered one.

(e) Mortgage permission from the authority.

Requirement for society flats

(a) Copy of share certificate.

(b) Letter from society regarding total cost of flat amount already paid by the applicant and the area of the flat.

(d) Whether society is in the approved list of the company

(e) Photocopy of the receipts.

Requirement for purchase of house/flat

(a) Agreement to sell.

(b) Photocopy of property papers. The title to the property must be clear marketable and free encumbrances.

(d) Valuation report duly filled by a qualified architect or civil engineer. Additional requirements for construction/Extension:

(a) Copy of sanctioned plan of the property as certified by a qualified architect or civil engineer.

(b) Detailed item wise estimate of construction prepared by a qualified architect or civil engineer.

(d) An attested copy of the last title deed or property papers such as conveyance deed sale deed lease deed general power of attorney of last 12 years.

Besides property documents personal documents which have to be furnished:

For salaried class

(a) Latest salary slip/certificate showing all allowance deductions and details of outstanding loans in respect of applicant/co-applicant.

(b) Copy of the house-building advance (HBA) sanction letter with terms and conditions if taken from the employer.

(d) A letter from your employer agreeing to deduct the monthly instalment repayment of the loan from your salary.

(e) Original and photocopy of rent receipt.

(f) Signature verification from the bank.

For Business or profession, i.e. self-employed:

(a) Acknowledged copy of the Income Tax returns advance tax payment with computation/balance sheet/profit and loss/A/C for the last 3 years certified by a Chartered Accountant.

(b) A note on the nature of the business form of organisation clients and suppliers.

(d) Sole proprietorship declaration on the letterhead.

(e) Proof of existence —Telephone bill or electricity bill/shop & Establishment Act Certificate/SSI registration certificate/Sales certificate.

(f) Signature verification from the bank.

For partnership firms:

(a) Proof of income-Certified Balance sheet and P&L account for the last 2 year certified by CA.

(b) Acknowledged copy of the IT Return for the last 2 years.

(c) Proof of existence-Telephone bill or Electricity bill/Shop & Establishment Act Certificate/SSI registration certificate/Sales Tax certificate.

(d) Partnership deed.

(e) Letter of Authority from all the partners authorising one partner to sign and execute all the documents in the specified format on the letterhead.

(f) Signature verification from the bank mentioning A/c number and number of years in operation.

For private limited company

(a) Proof of income-Certified Balance sheet and P&L account for the last 2 years certified by CA.

(b) Acknowledged copy of the IT Return for the last 2 years.

(c) Proof of existence-Telephone bill or electricity bill/Shop & Establishment Act Certificate/SSI registration certificate/Sales Tax certificate.

(d) Memorandum and Articles of Association.

(e) Board resolution signed by any director authorising any other Director to enter into agreement with the finance company in the specified for mat on the letterhead.

(f) Signature verification from the bank mentioning A/c number and number of years in operation.

Interest Rates

Company
Name

Rs 3 lakh -5 lakh

Rs 5 lakh- 8 lakh

Rs 10 lakh- 15 lakh

Rs 15 lakh and above

HDFC

10.75- 12.5

10.75- 12.5

10.75- 12.5

10.75- 12.5

PNB Housing Fin

13.0

13.0

13.0

13.5

HSBCT

13.6/ 15.5

13.6/ 15.5

13.6/ 15.5

13.6/ 15.5

Corporation Bank

12.25

12.25

12.75

12.75

Canfin Home

13.25

13.25

13.25

13.25

SBI Home Fin

13

13

13.25

13.25

LIC Housing Fin

12.25

12.25/ 12.5

12.25/ 12.5

12.25/ 12.5

GIC Housing Fin

13.25

13.25

13.25

13.25

Global Hous Fin

13.0

13.0

13.0

13.0

Interest rates varies from one finance company to another. The market leader HDFC rates are very competitive when compare with other finance companies. The interest rates are given below:

Another most important thing is housing insurance. Which is now very essential for protecting your hard-earned asset. The insurance covers is very cheap. For a mere Rs 65 per 1 lack i.e. Rs 650 for a house valued at Rs 10 lakh you can insure your house against fire. Lighting and next strikes. The house insurance will automatically cover a number of natural calamities like earthquake, floods, cyclones and landslides. Instead of paying annual premium the consumer can pay ten years insurance premium in advance at a 50 per cent discount.

Unfortunately we do not have comprehensive legislation covering the activities of builders and property developers so that they can be booked if they default on their construction deadlines or fail to hand over possession by the agreed date. The legal system in India is so overburdened and expensive those property investors are often more willing to forfeit their money than to approach a court of law for redress. Unscrupulous builders property developers and estate agents have therefore taken full advantage of the loopholes in the system. While little-known developers dupe investors by absconding with the deposit amounts, even established developers harass investors by not completing projects on time.

The builder may also include unfavorable terms in the fine print of the documents that would cause the ignorant investor to lose considerable amounts of money. In most places a strong nexus still exists between politicians, the police. Builders and bureaucrats that causes the unwitting investor grief.

The passing of the Consumer Protection Act and the establishment of special dispute settlement machinery was one of the biggest milestones in the history of independent India. The number of cases registered before the various district for a state commissions and the national commission has multiplied in leaps and bounds. After an amendment in the Act in 1993, there is provision and opportunity for the common man to seek redress against a builder if he fails to keep his promises made at the time of collecting the deposit.

H.D. Shourie’s voluntary organisation, ‘Common Cause’ has taken a small step in the direction of promoting a disciplinary organisation among the various players of the construction industry. It had recommended the establishment of National Real Estate Development Council, whose main function is to supervise various activities pertaining to real estate development.

To be concluded

How to plan retirement
Ashok Kumar

Can one build one’s own pension plan by exercising investment choices that ensure not only good return, but lesser risks? It is also important that the return is relatively assured despite falling interest rates all around. Is this possible? Perhaps!

In this concluding part of this three part series, let us zoom in on some more investment schemes that could help one earn a comfortable monthly income, post-retirement.

Mind you, do exercise caution and your own judgement as the endeavour here is to take a closer look at some of the better-known pension plans available in the market.

Regular income bonds

Regular Income Bonds (RIBs) from financial institutions are available three to four times a year. And usually, these offers include monthly income options. The tenure is anywhere between three and seven years. The return of around 9.5 per cent is assured but not tax free. The maximum rebate under section 80 L has been reduced to Rs 9,000 only. The liquidity under these schemes is low and availability is limited to the duration of the public offer period.

Annuities

Annuities are schemes from insurance players offering regular income. There are essentially two broad types of annuities deferred and immediate. As the name suggests, in deferred annuities the payment starts after the expiry of certain period, whereas in the case of an immediately. The payments can be received monthly, quarterly, half-yearly or annually as the buyer of the annuity may desire.

Again within each of these two categories there are three options each depending on the period for which annuity payment will continue. ‘Life Annuity’ is paid for as long as the annuitant is alive. Payments cease with the death of the annuitant. ‘Certain Annuity’ extends for a certain fixed pre-defined duration only. Payment stops at the end of this term. ‘Combined Life and Certain Annuity’ is for a minimum certain duration or the life of the annuitant, which ever comes later. In case of all these annuities there is not provision for the receipt of the principal sum at the end of the payment term.

Though companies have now introduced some policies where principal too is returned, but in effect that reduces the amount of annuity that one receives. For the moment, we will look at annuities where there is no return of capital. The annuity amount varies depending on the age at which the annuity is purchased for annuities which have a Life element in them.

This is obvious because the longer one lives the more the insurance company has to fork out since the annuity continues for as long as one lives. Those with family history of long lives could opt for ‘life annuity’ plan. Annuities are not very popular because in most cases the return of capital does not take place. At the same time the rate of return is pretty low. Moreover, exit options are very restrictive.

So, there is a wide choice for investment, depending upon your need profile. You don’t like the markets, the banks give you poor returns. But you have a neat little surplus on which you want to earn decent returns or you need them because that is your staple source of income. What do you do?

For starters, read this tri-series of article all over again.

Concluded

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TAX & YOU

by R. N. Lakhotia

Transport allowance

Q: As mentioned in this column dated April 9, the transport allowance is exempt from income tax to the tune of Rs 800 per month. If someone is getting Rs 1600 then the taxable amount will be Rs 1600 per month or Rs 1600-Rs 800-800 per month. Please clarify.

K.L. Pusri, Panchkula.

If some one is getting transport allowance of Rs 1,600 per month he will be eligible to claim a deduction to the extent of Rs.800 per month. The balance Rs 800 per month will be taxable.

Old deposits

Q: I am a senior citizen and a pensioner having term deposit in the bank and a part of it pertains to pre July 1995 which fetches me yearly interest of Rs 21652.

Kindly confirm if the TDS on interest income is exempted on pre-July 1995 deposit. If so you are requested to quote relevant rules.

2. TDS wrongfully recovered by the bank can be refunded and the 15H entry reversed on request or otherwise.

Satish Kumar Malhotra,

On yearly bank interest of Rs 21,652 tax will be deducted at source because as per section 194A, tax has to be deducted at source when the aggregate interest payable during the financial year exceeds Rs 5,000 in respect of the financial year 2001-2002.

Investment

Q: I am working in Private Ltd. firm. My taxable amount for the current year is Rs 5500 per month. I invested only in NSCs. Now the rate of interest is decreased by government to 9.5 per cent. I also contact the UTI about ULIP Scheme but they said now after 10 years amount is not doubled surely. So please guide me, in which schemes I can invest the amount which is profitable for me in current year. So I can invest app. 5500 x 5 =27,500. Please tell me about profitable schemes of different types.

Neeraj Kumar, While thinking of a profitable investment one would also think about the safety and the net yield on the investment. It is recommended that investment in PPF will be good for you to claim tax rebate and also to enjoy tax free income at 9.5 per cent per annum.

Capital gain

Q: My father built a house in 1951 at a cost of Rs 18000 which I have inherited. I want to sell the same and seek the following clarifications for the amount so obtained.

1. In what time period I shall have to purchase a plot or build a new house from the date of sale to avoid capital gain tax.

2. Can I invest the sale amount in two separate new houses to avoid capital gain tax.

3. Can I invest the full amount (or the balance amount after purchase of a new house) in a bank or bonds to avoid capital gain tax. If so, within what period from the date of sale & in which bank or bonds & for how long. Please quote section.

4. The sale amount will be around 36 lakh. What will be the amount of capital gain tax.

A. Singh, Amritsar

To avoid tax in respect of capital gain on selling your inherited property you have to buy another residential property either one year before the date of sale or two years after the date of sale. If you want to buy a piece of land and construct a house thereon then the time period is of 3 years from the date of sale.

You cannot invest the sale proceed in two separate new houses to avoid capital gain tax. The investment, therefore, has to be in one residential house property only. After investing the capital gain amount in one new house property you can make investment of the balance amount in the Bonds of NABARD or NHAI or REC so as to avoid full payment of tax in respect of capital gain accruing to you. The investment in these Bonds has to be made within 6 months from the date of sale.

They have lock-in period of 3 years. The relevant section is section 54EC of the Income-tax Act, 1961. Although the house is not constructed by you but has been inherited by you still you will be eligible for all the tax benefits in respect of long-term capital gain.

CHECK OUT

by Pushpa Girimaji

Beware of tall claims made by ads

It was the tallest of tall claims. But in a short person, it certainly stoked the desire to be tall . More so if that person was young and impressionable and did not worry about the safety of the so-called herbal drug offered as a panacea for the vertically challenged. And it nearly killed a young school boy who took it without his parents’ consent or knowledge, after seeing the advertisement in a newspaper.

Today, such advertisements are on the increase and so also the number of those who fall prey to such campaigns. The fact that the MRTPC which used to act as a watchdog of consumer interest and put stop to such advertisements is on its last leg seems to be have emboldened such dream merchants further. Under the MRTP Act, the office of the Director General (Investigation and Registration) can suo moto take cognizance of such advertisements, investigate into their veracity and if found to harm consumer interest, file a case before the MRTP Commission for a ‘cease and desist’ order. The Commission can also order publication of corrective advertisement and disclosure of additional information as found necessary and also award compensation for any loss or suffering caused on account of such advertisements or any other unfair trade practice.

I recall with nostalgia, the investigations conducted by the office of the Director General into many such tall claims, before asking, them to withdraw them. An advertisement touting a so-called ‘Swiss principle’ for gaining height for example, got the DG probing into the truth of the claim, consulting medical experts and also users. Soon, the company was forced not to only to change the advertisement, but also refund the amount collected from its dissatisfied customers. Of course the Commission did not fully exploit the powers given to it under the MRTP Act to deal with false and misleading advertisements by directing those found guilty of unfair trade practice to issue corrective advertisements. But even then, it did manage to instill fear of the Commission in the minds of advertisers.

However, going by the Competition Bill, 2001 introduced by the government in the Lok Sabha this month, the winding up of the MRTP Commission and the transfer of all cases pertaining to unfair trade practices which are before it to the consumer courts seems more or less certain.. This should make consumers seriously think of how to fill the void left by the MRTP Commission in so far as unfair trade practices are concerned.

Considering the fact that the consumer movement in the country is still in its infancy and consumer organisations hardly have the resources to fight cases of unfair trade practice, a watchdog body is very essential to protect the interests of consumers. In fact if false and misleading advertisements of non-banking financial companies, plantation companies, time-share resorts, health and beauty clinics offering miraculous cures are checked and stopped at the very beginning, thousands of consumers who fall prey to such advertisements and lose their hard earned money and may be health too, would be protected.

In fact it makes sense to create the office of the investigator attached to the National Commission because once the proposed amendments to the CP Act come into force, the number of cases before the National Commission would considerably come down for three reasons:

(a) commercial enterprises will be out of the purview of consumer courts (b) with the enhancement of the pecuniary jurisdiction of the consumer courts at the district level, the number of original petitions before the NC will come down considerably and (c) once it becomes mandatory for all those filing appeals to deposit at least 50 per cent of the amount ordered to be paid by the consumer court, there would be a reduction in the number of appeals too..

Given these factors, the National Commission can well take up the additional responsibility of protecting consumers from unfair trade practices. Of course the amendments should also empower the consumer court to award compensation in case of unfair trade practices too.