TAX DEDUCTION ON HOME LOANS INTEREST

(Advocate S Selvakumar|Property advocates in Bangalore|Property lawyers in Bangalore)

Incentives are offered under the Income tax Act on the investment in housing properties. Incentives come by way of deduction of payment of interest on the borrowed amount to buy or construct the house.Provisions relating to such deductions are provided in Section 24 of the Income Tax Act.The interest paid on a housing loan can be deducted from out of the taxable income of an Assessee according to this Section.The interest is permitted both on an accrual basis or due basis even if it is not actually paid in the year of accounting. 

To claim the deduction, the Assessee has to present a certificate from the Lender to whom the interest has to be paid on the borrowed capital pointing out the amount of interest paid or payable.The money should have been borrowed for acquiring the property or for constructing the property or repair of the property. Interest paid on a new loan taken to repay another existing loan is also permitted. The amount can be deducted in five equal installments starting from the previous year in which the house is acquired or built.

The first installment has to be deducted in the year of completion of property construction or the property is acquired and the remaining four installments in the four following years. Deduction for the full year is allowed even if one day is left in the year.

The maximum amount that can be deducted is Rs.1.5 lakhs.The money should have been borrowed on or following April 1, 1999 for acquiring it or for the construction.It is necessary that such acquisition or construction should have been finished within three years from the end of the financial year, in which the capital was borrowed.It has to be certified by the Lender that the interest is payable for the loan advanced for acquiring or constructing the house.

The deduction amount is limited to Rs.30,000 if the money has been borrowed prior to April 1,1999.The date when the construction was started is not important. It is important only when the construction is completed within three years from the end of the financial year in which the money was borrowed. It is also not necessary that the whole cost to be financed though loan. Any portion of the cost of the house can be financed through loan.

It is advisable for purposes of tax to borrow and build or purchase instead of using one's own fund. The reason is that, if one uses his own fund he will not get any tax deduction from his total income.

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DRAFT DEVELOPMENT PLAN

(Advocate S Selvakumar|Property advocates in Bangalore|Property lawyers in Bangalore)

At any conferences, seminars, discussions or at meetings the only statement that is commonly made is “Bangalore is the fastest growing city in the country, in Asia or in the World”.No doubt it is time that this is the fastest growing city, whether we should appreciate it or we should curse ourselves for this unwarranted ugly unplanned growth is a point that worries every one.So far all the plans, if any, have been totally flouted. No building byelaws have been followed; no law governing the growth has been respected. However with industries, multinational companies coming in, people from everywhere have found Bangalore to be their destination for earning their livelihood and thus Bangalore is growing. There has been unscientific growth all around, occupying the available land whether agricultural or non agricultural.There have been large scale encroachments on Government lands and the stage has reached when nothing can be done to set right the things.

Now Government has come out with a comprehensive development plan for the Metropolitan City of Bangalore through French consultancy services.  What are the guiding principles, if any, in this exercise involving crores of rupees is not known? One thing appears to have been disclosed is, it is a plan for the next ten years, i.e. till 2015.This so called ‘CDP 2015’ has been displayed by Bangalore Development Authority for Public viewing at the city’s youth centre viz. Yavanika. People are visiting in 100’s and 1000’s.A common man can hardly make out any thing.The maximum that a common man does at the exhibition is tries to find out, after a couple of hours searching, his place or his site. For what purpose this search is not known.

For a common man it is not possible to know about the ultimate purpose of the CDP. What the basic idea behind the plan and why for ten years!  Well, it is only for the planners to explain and convince the common man.What a common man in Bangalore wants is – good roads, jam free traffic movement, well organised and on scientific basis the city’s public transport system, open spaces and gardens, good school buildings, market places, adequate water supply, efficient drainage system and so on, and not just the plan for the next ten years of which one year is almost over.

Various major infrastructure works are in progress now. What is needed is the works are completed expeditiously as per schedule and not to talk or debate on future plan.Bangaloreans are aware of the slow pace of execution of the various infrastructure works like the International Airport, Metro rail, some flyovers etc.

What is required in the circumstance is that the authorities concerned should periodically give the status reports about the works in progress about the schemes already planned and are yet to be taken up.The delay in completion of the works affects the citizens and the business community.If there is a delay in completing the flyovers and the roads connected with those flyovers the shop keepers, business establishments have to face loses apart from inconvenience.

For any growth, planning is necessary but any such plan should be in the interest of the common man and for the benefit of the citizens.If the plan is made keeping in view the immediate need and executed in time and on schedule it would be more in the interest of a common man.

The CDP 2015 provides for large scale industrialization, large scale population influx from all over, without any indications of halting the expansion.If such planning continues we may all see the city of Bangalore with a radius of 100 Kms, i.e. Tumkur, Mysore, Kolar all becoming part of Bangalore City.No thought is given while preparing the present 2015 plan about the developments of other cities like Belgaum, Hubli-Dharwar, Mysore, Gulbarga and Mangalore.The other cities have been deprived of their basic needs and their developments.  Bangalore means the entire state or the state means Bangalore that is what a common man feels.

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Advocate S Selvakumar

NO ZONAL REGULATIONS WITHOUT ACQUIRING THE PROPERTY

(Advocates, Property advocates in Bangalore, Property lawyers in Bangalore)

Being one of the fastest growing cities,Bangalore is experiencing a steady increase in the population, the main reason being that the rapid growth of Information Technology, which has earned the titles of “IT Hub of Asia” and “Silicon Valley of India”. With the view to implement schemes for regulating  growth in the field of environmental exigencies, several legislation have been passed in different states, and one such act passed by the Karnataka Government is Town and Country Planning Act 1961.The role of the Planning Authority constituted under the said act is to implement schemes relating to public utility places, for developing the city in the planned manner, which includes public parks, Educational Institutions, etc.

The BDA is playing a vital role initiating step towards planning for development in Bangalore and accordingly prepared Comprehensive Development Plan (CDP) as per the Karnataka Town and Country Planning Act, 1961. The motto behind the implementation of such development plan is to develop the existing urbanized areas and extension of the already developed areas, which will avoid new developments in distant outskirts that lacks infrastructure and transporting. Added to this, CDP also aims at creating flexible land use zone, to strengthen and respond to the realistic regulations and finally to safeguard public interest also.

Supreme Court Judgement:

In the field of such Development Plans being implemented in various states, the recent Supreme Court, in its judgement in Raju.S.Jethmalani and others Vs State of Maharashtra and others, has envisaged certain mandatory procedures to be followed by the competent authority before initiating any action pertaining to the proposed Development Plan. However, the judgement mentioned above in particular pertains to Development Plan undertaken by the Government of Maharashtra under Maharashtra Regional and Town Planning Act 1966.

Welfare of the Public:

The Latin Maxim “Salus Populi est Suprema lex”  which means  the welfare of  the public is the Supreme law, this is one of the well known law which deals with the public interest , to this maxim all other maxims of public policy must yield for the object  that  “ all laws are  to promote the general well being of Society”. In other words “regard for the public welfare is the highest law”. “Necesstas Non Habet Legem which means necessity has no law is the another maxim that has been relied upon by the in the judgement delivered, which has been discussed in detail below.

Brief facts of the case referred to above are as follows:

Raju.S.Jethmalani and others V/S. State of Maharashtra and others (Order dated 5/5/2005)

 On 18th of September 1982 draft development plan was prepared under Bombay Town Planning Act 1954 and Section 26(1) and 37 of the Maharashtra Regional and Town Planning Act 1966, for developing parks and Plot No. 437 and 438, measuring 2.00 Acres and 1.5 Acres was earmarked for the purpose of developing a park and was proposed to be named “Salisbury Garden”. The said plan was finalized and sanctioned on 5/1/1987.

The present controversy centers on the acquisition of the Plot No.438. In this regard, the Government issued notification, inviting objections and the Present owners submitted their objections for de-reserving the same. However, the proposal was initiated by the Maharashtra Government for de-reservation of the plot earmarked for development of the park, due to paucity of funds for acquiring the same and the impugned notification was challenged by a Public Interest Litigation.

The High Court suggested for a settlement that instead of quashing the impugned notification, the implementation of the said notification can be deferred for the period of two years and if the same could not be carried out within the time specified, then the notification shall be set aside. However, while delivering this judgement, burden was laid on the owners of the plot No.437 to provide necessary area, approximate in size, suitable for the purpose of garden and park as envisaged in the Development Plan. The said order was not challenged by the Owners and after the expiry of two years, the impugned notification became operative and direction was issued to the concerned authority to proceed accordingly. After such passing of the said order, an application was filed before the High Court, seeking clarification and the same was also dismissed. Aggrieved by both the orders, the Owners preferred Special Leave Petitions before the Honorable Supreme Court.

The Honorable Supreme Court held that though the Legislation does not prohibit any Authority from acquiring land belonging to any private person for implementing the Development Plan to provide amenities to the residents of the area, such land cannot be earmarked for development plan without acquiring the land, without which the right of the Owner to use his land for residential purpose will be deprived. In the present case, the said plot was earmarked for the purpose of developing a garden under its development plan of 1966, but no effort was made by the Municipal Corporation or the Government to acquire this Plot for the purpose for which it was proposed to be acquired.

However, suggestion was made to the parties to the PIL asking them to explore the sources for mustering funds for acquiring the plot, which is the subject matter of the litigation and since parties confessed their inability for the same, the Honorable Supreme Court passed the order giving six months time to the residents if they can raise funds for acquisition of the land by the Government and if the same could not be done within the specified period, then the Appellants/Owners can utilize the land for the residential/other purpose in accordance with law. In View of the above discussion, the appeals were allowed.

The principles lay down by the Honorable Supreme Court is that though the Legislation does not prohibit any Authority from acquiring land belonging to any private person for implementing the Development Plan to provide amenities to the residents of the area. In case of such land being earmarked for development plan, then such Authority should first acquire such land, by following all the procedure envisaged under Law, without which the right of the Owner to use his land for residential purpose will be deprived.

C.D.P. in Bangalore:

In regard to the CDP being implemented by Bangalore Development Authority, the same principles are required to be followed. However, no final notification has been passed by the Government for giving legal sanction for CDP, which has led to lot of chaos among the public and impediments in its implementation by the competent authority. Keeping in view the Supreme Court decision discussed above, anybody aggrieved by the act of such authority pertaining to their property being acquired for development plan can challenge the same in the Court of Law and the decision passed in this regard is binding on the Competent Authority. 

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Advocate S Selvakumar

Property transfer advisor

 

REASON FOR THE DENIAL OF HOUSING LOANS

(Advocates, Property advocates in Bangalore, Property lawyers in Bangalore)

Generally, it is very difficult to construct a house without availing housing loan. There are numerous Housing Finance Institutions (HFIs) viz. Banks and Housing Finance companies, which provide housing loans ranging from few thousands to millions of Rupees.Inspite, of existence of various Agencies that provide for housing loans, availing such loans may not be an easy task since, there are lot of instances where such loan borrower are rejected out rightly due to various reasons.

When an application for the house loan is rejected, it is quite natural for the Applicant to get disappointed and at the same time wonders what went wrong for the rebuff. There may be a big communication problem at that juncture and the Applicant may never get to know about the exact reason for the rejection of the application or he may get an evasive response.The Bank Official, who deals with the Borrower will play a major role and enlighten the Borrower about the procedure rather than keeping the Applicant in the dark.

Types of Housing Finance/Loans: There are different types of Housing Finance/Loans available for the different categories which are listed below:

Purchase of land Loan is given for purchase of site. Most of the Bankers do not entertain sanction of such loans since calculative risk is more in such loans.

Constructed houses or Flats Loan is sanctioned for the purpose of purchase of a house which is already constructed and available as readymade. The same can be availed for the purchase of flats too.

Construction Loan As the name itself suggests, loan can be availed for construction of a building on the entire property.

Composite Loan This means that loan can be availed both for buying a site and constructing a house.

Take over Loan This means taking loan from one Bank to another Bank, in order to clear the dues of the other Bank.

For each of the above said loans, margin money will differ and also certain restrictions will be imposed by the Banks before the loan is sanctioned. For instance, when a person avails the composite loan, he should construct the house within the stipulated period, which may vary from 12 to 24 months as per the terms agreed. There have been many cases where the Applicant and a Builder enter into an Agreement for availing housing loan, which is required for the Builder to commence the project and subsequently vanishes with the unutilized loan amount once the huge chunk of principal amount is received by the Builder, leaving the Applicant in the lurch and making him to face the consequences. It is advisable for the Applicant to take necessary precaution before applying for the loan and utilizing it properly. However, this kind of problem can be avoided if the Applicant approaches reputed and established Builders.

Regular Income of the Applicant :The first and foremost criteria of the Banks before sanctioning or even before entering the loan application is about the steady monthly income of the Applicant. If the Applicant is a salaried man, either serving in a Government Organization or private company, the first hurdle is cleared. Then the Banks will enquire about other aspects such as IT returns being filed by the Applicant for the past two or three years, Bank Statements for the last 6-12 months and other relevant documents to ascertain financial status and Banking transactions.Further, Bank financial statements will reveal outstanding loans and repayment details, bounced cheque details, regular credit of income, any subsisting encumbrance and if such statements are satisfactory to the Bank, then it is the first round of victory for the Applicant.

Margin Money: Usually, Banks provide the loan to an extent of 85% of the total estimated amount of the plot or property or flats.The remaining 15% has to be arranged by the Applicant and the loan will be sanctioned by the Bank only after giving satisfactory evidence regarding his capability of mobilizing that 15% of the balance amount.

Credit Rating: Loan will be sanctioned on the basis of the present salary and only 50% of the salary amount will be considered for the loan repayment purpose by the Bankers. For instance, if the Applicant is getting Rs. 10,000 PM take home salary, loan will be sanctioned taking into consideration his salary status, 50% of the salary will be taken for repayment of the proposed loan and the remaining Rs.5,000/- will be considered as the amount for his expenses. Even if a person is getting Rs.25,000 PM as gross but Rs.10,000 as take home salary, he may get the loan amount considering his take home salary and not his gross. 

Apart from this, other factors like the Applicant's antecedents are also thoroughly checked before sanctioning of the loan, wherein the Bank will look into the total number of dependents of the Applicant to ascertain his repayment capacity. If the dependents are more, the loan amount sanctioned will be obviously less. Each Bank has its own prescribed criteria pertaining to monthly income of the Applicants based on which the loan is sanctioned. There is also a necessity of a Guarantor's signature in some cases. Applicants, who do not have a fixed income, are not entertained by a majority of Banks.

Age Factor: Generally availing loan jointly by all the Co-Owners will increase the borrowing capacity. Further, the age of all the Co-Owners should neither be less than the lower limit nor exceed the upper limit. However, age limit will vary from one Bank to another. It may also affect the tenure of the house loan as well as EMI's. Some of the Banks may stick to 70 years as the upper age limit for the Co-Applicant. If the Applicant is 35 years and the Co-Applicant is 60 years, then the loan will be sanctioned for a maximum period of 10 years (70-60=10 years). In other cases, the Applicant's retirement age is also taken into account. If the Applicant is 54 years old and would be retiring by 60, then the maximum loan tenure would 6 years only.

Property age: It is a known fact that the age of the property is vital in case of a resale. In many cases, loans are sanctioned on resale properties if such properties are aged less then 50 years. If the Applicant intents to buy properties situated in the areas which are black listed by the Banks for various reasons, then such application will be rejected, irrespective of Applicant's financial status. The said property should be within the geographical limits as defined by Banks for the sanctioning of the loan. Some of the Multi-National Banks have their own set of rules and normally do not entertain the loan applications of TV and other Artists, Police, Journalists, Politicians, Advocates and others.

Legal Aspects: All said and done, paramount importance should be given to the legal aspects. The title of the property should be clear in all aspects right from the origin, flow and the present status. If the title is not clear, the application will not be entertained and it may be rejected. The Banks will not sanction the loan even if the opinion is clear but the supporting original documents are missing since it may conclude that the property is either mortgaged elsewhere or having some other problems. The actual market value and the percentage of deviation of the property will also be taken into consideration before the sanction of the loan.

Thus, there are not many hassles to get a loan from the Banks of your choice provided all the pre-requisites are fulfilled by the Applicant. Some years ago, a person would have ventured to construct a house after 45-50 years duly saving the required amount to construct a house. But now due to the accessibility and availability of easy loans from Banks, youngsters between the age group of 25-35 are either constructing new houses or buying an apartment which is indeed a good sign.Though the switch-over to a liberalized lending regime has brought in competition and efficiencies in the Housing Finance Market, factors like the ability to cater to the larger segments of the population, including those in rural areas is still a challenge. These segments are outside/below the income tax bracket and the fiscal benefits are no concessions for them. The Bankers expect higher equity from the Applicant's side for sanctioning the loan.

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Advocate S Selvakumar