This post provides you the key legal checklist for buying and selling a house property; method of title deed verification, database available with CERSAI and RERA, EMI calculation, associated costs of home loans, teaser rates, risks involved in transferring of loan to other banks, rules regarding funds transfer abroad after disposal of properties in India; capital gain calculation, how to open a capital gain account in banks, clubbing provision of Income Tax act, Gift tax rules, redevelopment of Society’s building, etc.
Meaning of reset clause, spread/mark-up, margin/downpayment, switch overcharges/transfer charges, pre-EMI charges, fixed rate and floating rate, amortization of loan repayment, tax relief on home loans, whether the bank can insist to buy Life Insurance Policy for sanctioning home loan? What happens if you repay your home loan ahead of Schedule? etc are also explained in this post.
Title deed verification:
Identifying a property for purchase is not just about the price of the property, locality, or amenities like gym, club swimming pool, etc. Along with identifying a property that suits your above requirements, you have to consider certain important aspects before entering into the sale agreement with the vendor. The first job is to ascertain the identity of the seller and whether he has absolute title over the property. The second aspect is that you need to find out whether the construction is legal and authorized. The third aspect is whether direct access is available to the building from the road or whether you have to pass through someone else’s property. Your job is made slightly easier when you apply for the loan, as the lender also looks into the above aspects before releasing the loan; still, you need to be in the loop. In case of buying an old building, ensure that the documents being provided to you are not colour photocopies, there were incidents like fraudsters have submitted photocopies (Xerox) of an agreement dipped in cow dung and dried to show that it is the original title deed of many decades old. The chain of transfer of property from the beginning without break should be verified. It is advisable to show the original title deed to an advocate (Banks has a list of panel advocates) to confirm that the document shown to you is the original document. Get the no encumbrance certificate from sub-registrar’s office to find the true title holder and if it is mortgaged to any financier. Obtain all tax-related papers to ensure that all documents are up to date.
Read: How to examine title deeds while buying a house property
CERSAI website database helps home buyers
General Public can access to CERSAI website and check if the property they have shortlisted is free of any liability or has been used as collateral for a loan. It not only saves homebuyers money but also saves them from tiring legal hassles in the future.
Read: How does the CERSAI database help Homebuyers and banks?
The number of benefits available to homebuyers under RERA:
As per RERA, the carpet area excludes the area covered by the external walls, along with areas under services shafts. This includes the balcony or verandah area, and open terrace area. The carpet area is the net usable floor area of an apartment and includes the area covered by the internal partition walls of the apartment. The promoter shall use a standard formula for the calculation of carpet area. This way, promoters cannot provide inflated carpet areas to increase prices. Registration of the sale deed of a project unit cannot be done in the office of the sub-registrar without obtaining Occupancy Certificates or Completion Certificates.
Read: RERA sweetens the homebuyers’ deal with an extra layer of security.
Supreme Court Judgment on POA:
Supreme Court on October 11, 2011, ruled that property sale through power of attorney (PoA) is illegal and only registered sale deeds provide any legal holding to property transactions. To transfer property titles, a sale deed must be completed, after which the buyer must pay stamp duty and registration fees.
Read: Whether the sale of property through power of attorney is valid
Original Power of Attorney not needed to sell the property, copy enough: Supreme Court
In its judgment dated 30th January 2022, in the case of AMAR NATH– APPELLANT(S) VERSUS GIAN CHAND AND ANR. … RESPONDENT(S)[ (CIVIL APPEAL NO. 5797 OF 2009,], the Supreme Court observed that the production of the original power of attorney is not necessary if the document is presented for registration by the power of attorney holder of the principal.
Read: Original power of attorney is not a must
Things to know before acceptance of Power of attorney:
Every other day, we have been coming across cases where fraudsters are using Power of Attorney for the Sale of property, creating mortgages. General Public, Bankers, and other financial lenders are most vulnerable to Power of attorney-related frauds. Therefore, Staff working in the loan and advance departments of banks and financial departments shall be vigilant at the time of documentation and may follow these general guidelines while accepting Power of Attorney for the creation of the mortgage.
Associate costs to home loans:
Generally, there are 18 types of charges you may have to pay on home loans. Do keep in mind all of these charges may not apply to every borrower; so before applying for a home loan know what are the fees you may have to pay on home loans.
Read: Know all the associated costs of your home loan before you apply
Teaser rates:
Some banks may initially offer teaser rates to market their credit products, particularly home loans to attract customers. A teaser rate means offering an introductory rate of lower interest rate on their loans to new customers. However, the introductory rate of lower rates of interest offered by your bank is not permanent. After the initial years of loan tenure, the initial rates are shifted from fixed to floating rates or the market-adjusted rates, which can be normal or higher than the normal rates. The rates reset after the teaser rate expires, and customers may feel the heat to see higher rates of interest applied to their home loan account. Once the interest rate is reset, the borrower will be asked to pay higher monthly installments or assuming the EMI is kept the same, when the interest rates are increased, a greater portion of EMI is adjusted towards the interest component than the principal, whereby this could increase the loan tenure.
What is the amortization of debts?
Amortization refers to the process of paying off debt over time in regular equal payments consisting of interest and principal loan amount sufficient to repay the loan in full by its maturity date. Amortization also refers to the spreading out of capital expenses (similar to depreciation) related to intangible assets over a specific duration, normally over the asset’s useful life. Amortization of capital assets is done for the purpose of accounting and tax purposes.
Read: Do you know what an amortization schedule is
How EMI of a loan is calculated?
EMI stands for Equated Monthly Installment for the loan you avail of from your bank or other lenders. Each installment of the loan repaid under EMI consists of the principal portion of the loan amount and the interest paid on the loan based on the tenure of the loan, and the rate of interest. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding.
Read: Do you know how your loan EMI is calculated?
What is the meaning of spread/mark up in bank loans?
In banks, the markup is the value added to the cost of funds used for lending as Spread or mark-up broadly: profit.
Read: Meaning of Spread/Mark up in Bank loan rates
What is the meaning of the reset clause?
The reset rate is the new interest rate that a borrower must pay effective from the scheduled reset date. The lender will provide details on a loan that has reset terms and interest rate calculations in the borrower’s credit agreement.
Read: Meaning of reset clause in Bank loan rates
What is the meaning of margin/down payment?
When you approach a bank or NBFC for loans like home loans, education loans, personal loans, etc., they do not finance 100% of the value of the items/property to be purchased. Financial institutions lend a certain percentage of the purchase value of the item or house property and ask the borrower to pay the balance amount from his own source. The funds arranged by the borrower from their own source being the difference amount of bank loan and purchase cost is known as margin or down payment.
Read: Meaning of Margin/down payment in loan explained
Switch over charges/ Balance transfer charges:
Balance transfer of a Home Loan means you can switch the loan amount from one bank to another. It enables you to save on interest. If you’re facing a high-interest rate issue, you can consider this option.
Read: Meaning of Switch over charges/ balances transfers charges
Fixed-rate of interest and floating rate of interest:
There are two types of home loans viz. Floating Rate Home Loans and Fixed Rate Home Loans. The EMI of floating-rate loans changes with changes in market interest rates. The rate of interest on fixed-rate home loans is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In the case of a home loan for the entire tenure of the loan, the EMI due to the bank remains constant. If a bank offers a Loan that is fixed only for a certain period of the tenure of the loan, the bank may charge a higher rate at market-adjusted interest after the lock-in period.
Read: Home loan interest: Floating or fixed rate which is better for you?
What happens if you repay your home loan ahead of Schedule?
Most banks allow you to repay both part and full prepayment of a home loan. You are also allowed to pay a certain portion of the outstanding balance and go with the same EMI afterward. However, many banks charge early repayment penalties of up to 2-3% of the principal amount outstanding.
Read: What happens if you repay your home loan ahead of Schedule
Tax reliefs on second home loans:
Generally, you can seek a first-time home loan for buying a house or a flat, renovation, extension, and repairs to your existing house. You can own more than one house and borrow home loans for that purpose and also enjoy tax benefits.
Read: Will I qualify for a second home loan
Meaning of Pre-EMI:
During the period of pending final disbursement, you may be required to pay interest only on the portion of the loan disbursed. This interest is called pre-EMI interest.
Read: What is pre-EMI interest?
Tax reliefs on second home loans:
Generally, you can seek a first-time home loan for buying a house or a flat, renovation, extension, and repairs to your existing house. You can own more than one house and borrow home loans for that purpose and also enjoy tax benefits.
Read: Will I qualify for a second home loan?
NRIs can transfer the money from the sale of property
Funds from the sale of immovable property or money lying in an Ordinary Rupee Account (NRO account) can be transferred abroad by Non-Resident Indians or Persons of Indian Origin/ Overseas Citizens of India.
What are the eligibility conditions to avail of a home loan from a bank?
Banks generally fix an upper age limit for home loan applicants, as the uncertainty surrounding the life span and financial condition of senior citizens makes lenders apprehensive towards lending them. Some banks lend to senior citizens for up to 70 years. In the case of the loan being applied to a younger person like a son/daughter, the bank may ignore the age limit of the senior borrower. Housing loans are sanctioned by banks mainly on the assessment of prospective borrowers’ monthly repayment capacity for the entire tenure of the loan and borrower’s credit-payment history provided by credit information companies like CIBIL about previous loans/credit cards etc. enjoyed by the customer from various financial institutions.
Read: How does a bank decide your home loan eligibility
Whether bank can insist to buy Life Insurance Policy?
It is not mandated by any authority like RBI or IRDA to buy a life insurance policy from a bank in order to get a loan. However, if you buy a life insurance policy equivalent to the loan amount it is beneficial to family members in case of your unfortunate death. The loan amount will be liquidated from the insurance policy claim. However, in this regard, the prospective borrower cannot be forced to buy the insurance policy. Bank cannot refuse a loan without giving a valid reason.
Read: Is your lender insisting you buy an insurance plan before sanctioning a home loan? Here’s what to do
Taxability of Gift received:
As per income tax law, as it stands today which was amended in 2017, gifts received by any person or HUF are taxed in the hands of the recipient under the head ‘Income from other sources at normal tax rates. If any sum of money is received on or after 01/10/2009 by an Individual or HUF without any consideration and the aggregate value of which exceeds Rs. 50,000 (i.e, monetary gift may be received in cash, cheque, draft, etc.) during the previous year, then the whole of the aggregate value of such sum is chargeable to tax as income from other sources in the hands of the recipient.
Read GIFT TAX Rules: Find out who needs to pay tax on gifts received.
Capital Gain Tax rules:
As per the Capital gain rules, the gains from sale proceeds are invested in the purchase of another house either a year before or within two years from the date of transfer, or used for the construction of a house within three years of the date of transfer. In order to enable the taxpayer to park their capital gain funds till they are invested for the prescribed purpose, the taxpayer is allowed to deposit the money in banks under the Capital Gains Account scheme (CGAS).
Read: Capital gain rules
How to open a capital gain account in a bank?
Two types of accounts can be opened in banks under the Capital Gain Account Scheme(CGAS) viz. CGAS savings account (Account A) or CGAS term deposit (Account B). Application for a capital gain account either for a Type A account or a Type B account shall be submitted to the authorized bank along with necessary documents including a copy of PAN card address proof and photograph, etc. In account type ‘A’ savings deposit account, money may be withdrawn any number of times for the specified purpose indicated under the scheme. Money so withdrawn shall be utilised for specified purposes within 60 days of withdrawal; unutilized money shall be re-credited to the account before 60 days of withdrawal. Any amount withdrawn and underutilized beyond 60 days of withdrawal or the unutilised amount remaining in the capital gain account beyond the expiry of the time limit will be treated as taxable capital gain income. Usually, a person who is planning to construct a house over a period of the time prefers to open a type ‘A’ account. ‘Account type ‘B’ is the term deposit that can be opened for a period of 3 years from the date of transfer of the original asset (not the date of deposit). Remember, if the assignee keeps capital gains for more than the maximum period; entire capital gains will become taxable.
Read: how to open a capital gain account in the bank:
Clubbing provision of the income tax act:
As the word suggests, clubbing of income means adding or including the income of another person (mostly the wife’s income) to one’s own income under Section 64 of the IT Act. The intent of the clubbing provision is to control tax evasion arising out of the transfer of assets and income to the spouse. Clubbing provisions of the income tax act also apply to assets or income transferred to the minor children from parents and from father-in-law to daughter-in-law, also to assets or income transferred to one’s HUF. The clubbing provisions are not just restricted to cash or bank transfers, but also apply to the transfer of other asset classes like shares, mutual funds, and property — wherever there’s a whiff of tax evasion.
Read: Why returns from Pin Money and Streedhan of a woman cannot club with her husband’s income?
Income Tax relief on Home loans:
There are different sections of the Income Tax Act under old rules available to individuals such as section 80(C), 80EE, 80EEA, and section 24 of the income tax act which allows owners of the house to claim a deduction of home loan interest on an accrual basis, not on actual payment. The repayment principal amount of the loan, up to Rs.150000.00 in a financial year, enables you to get a tax rebate up to u/s 80 ( c ) of the IT Act. Homeowners can claim a deduction of up to Rs 2 lakh on their home loan interest as per section 24(1B) of the income tax act. In case of a loan availed for the construction of the house, the interest deduction can only be claimed, starting in the financial year in which the construction of the property is completed. The other condition is that the purchase or construction must be completed within a period of 5 years, lest interest deduction allowed up to a limit of Rs.30000 only. The period of 5 years is calculated from the end of the financial year in which the loan was taken. So, if you have taken a loan for the construction of a house during June 2018, the construction of the property should be completed by 31st March 2024.
Read: ‘Calculation of income or loss on house property ‘for assessment of income tax.
How to go ahead with the redevelopment of society’s buildings?
Redevelopment works best when a society is in dire need of extensive repairs but is starved of the necessary funds for it. Any building that is over 25 years old can go for redevelopment once it is declared as dilapidated by a Government architect. Under the Maharashtra Apartment Ownership Act (MAOA) with a minimum of 51% of members’ consent, a Society’s dilapidated building can be reconstructed.
Read: Redevelopment of Housing Society’s building: How to get down into task?
Self-redevelopment of a housing Society’s building:
With the developer removed from the process, there would be no risk of fraud, delayed construction, or loss of area; in fact, residents could expect up to 40-50 percent increase in carpet area compared to 15-20 percent through the traditional process. In case the housing society undertakes redevelopment of the building itself, the society shall be entitled to an extra FSI of 10%, over and above what it is entitled to under the development regulations of the area. Even for Transfer of Development Rights (TDR), the charges would be 50% of the normal charges payable by the society and get extra FSI at a discount rate. Self-Redevelopment has its own set of challenges that need to be considered before making the final decision. Redevelopment of any property requires approval from many departments and government authorities. There are almost 55-60 clearances required for such projects, including NOCs from the coastal regulation zone, traffic, fire, defense, aviation, and other authorities, which can be very time-consuming. People who take initiative in self-redevelopment must have enough time, competence, and inclination to manage a big self-redevelopment project.
Read Self-redevelopment of housing society’s building: Benefits, disadvantage, and process explained
Importance of conveyance of the building in the name of the society:
If the conveyance is not executed in favour of the Society, the Society does not have legal rights or ownership of the land on which the Society’s building stands. If the legal title of the land and building is not in the name of the society, it is not possible for the society to take up redevelopment projects of the building at some stage. Even for using additional FSI or for carrying major repairs, Municipal authorities will insist on NOC from the Landowner of the building.
Read: Why is the conveyance of property in the name of Co-operative Housing Societies important?
A joint venture of the redevelopment of their building by multiple societies:
All the Housing Societies participating in the joint venture shall be first amalgamated into a single entity to deal with the redevelopment of their buildings. Any two or more societies may, by a resolution passed by not less than three-fourths of all the members of each society and voting at a special general meeting called for the purpose, amalgamate as one society. Such decisions are taken strategically to benefit the original society as well as the society/s it wishes to amalgamate with. But proper checks and balances are put in place by the government in such scenarios. After the resolution is passed each such society shall apply to the Registrar for cancellation of its registration and also shall jointly make an application for the registration of the amalgamated society. The registration of the amalgamated society shall be deemed to be sufficient to vest the assets and liabilities of the amalgamating societies in the amalgamated society. In this case, glitches are more intense and more misery to the flat owners when there are multi-stakeholders with varied knowledge, wisdom, expertise, and socio-economic status to challenge the decisions of the redevelopment committee.
Home buyers of ailing real estate companies may approach NCLT for resolution as a secured creditor:
The ordinance passed by the Government of India on Wednesday (June 06, 2018) to the Insolvency and Bankruptcy Code (IBC) treats home buyers in ailing real estate companies on par with banks in the resolution process. The new IBC ordinance tags the buyers of home buyers with financial creditors which empowers even a single home buyer to approach the National Company Law Tribunal to initiate insolvency proceedings against the realtor. The ordinance provides due representation to the home buyers in the Committee of Creditors (CoC) and makes them an integral part of the decision-making process. However, it will depend on the agreement entered into by the home buyer with the realtor and whether they are the secured creditors. It is given to understand that in many states there are two agreements viz. one for the part of the land and the other for the house which allows home buyers to be treated as secured creditors.
Read IBC ordinance: Now home buyers are on par with banks in the resolution process
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