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Navigate the complexities of buying a home with a comprehensive RERA and Income Tax checklist. Learn to make informed decisions, ensure compliance, and safeguard your rights as a homebuyer.

Buying your dream home today is a gigantic task. You have many options to select from that you are often spoilt for choice. The underlying risk in this is that you might make a wrong choice. In this article we will see how to make use of the MahaRERA website to be an informed home buyer and make the right choice. Further, we will also look at what are the things you need to keep in mind under the Income Tax Act to ensure that you manage your compliances and taxes well in future.

The biggest risk as a home buyer in an under construction property today is the risk of not receiving possession of your property or delayed possession. In both the scenarios there is a tangible material loss that the home buyer has to incur. But is there a way to minimise this risk?

The answer to it is, YES. The only way to ensure that you take a decision that is close to accurate is to make an informed decision.

Real Estate Regulation and Development Authority(RERA), is a central Act that aims towards promotion of Real Estate and creating a transparent process for the sake of consumers and protecting their rights. It also seeks to create a speedy redressal mechanism for disputes in this area. Now, each state was required to create its own regulatory body under this act e.g., MahaRERA for Maharashtra. All projects that are started need to be registered with RERA to be able to sell, advertise, market, book or purchase.

Promoters need to provide information to the RERA authorities, which are displayed on its website for the potential buyers to review and make an informed buying decision. You will find this information under the Registered project option under the head Registration on the https://maharerait.mahaonline.gov.in/searchlist/search?MenuID=1069

One has to keep in mind three things while buying any under construction property – Promoters, Project and Title.

  • Promoter
    • Before investing in any under construction property, it is very important to view the Track record of the promoter.
    • The delay in completion of past projects, number of pending cases and Recovery warrants issued against the promoter. Also, are there any lapsed projects in the name of the promoter. Does the promoter have any past experience or whether it is their first project? This will help you to evaluate whether or not to invest your hard-earned money in the project.
    • The answers to the above questions can be found out easily on the MahaRERA website.
    • At times it is seen that big names are involved in the project as development managers, while the actual promoter is someone else. The procedure for exit of a development manager is not very cumbersome and hence as a home buyer it is important to have the knowledge of the actual promoters of the project as they are who are actually liable to you.
    • Special care should be taken if the promoter is a company to ensure that it is not under process or insolvency or is not struck off. This can be checked by visiting various sites such as the IBBI website or MCA website.
  • Project
    • Another important consideration at the time of buying the property is what is the type of project. Is it a greenfield project or a redevelopment project or a joint development project or a Slum Redevelopment project.
    • In case of a redevelopment project, it is advisable to make the Society a party to the agreement.
  • Title
    • As a buyer it is very important to know that the title of the project is free of any encumbrances.
    • RERA requires a promoter to provide a list of documents such as –
      • Approved Plan
      • Commencement Certificate
      • CERSAI Report and Sold/unsold Inventory
      • Model Agreement + Deviation report
      • Model Allotment Letter + Deviation report
      • Development Agreement
      • Declaration of Encumbrances
      • Various forms issued by professionals such as,
        • Form 1 – Architect’s Certificate
        • Form 2 – Structural Engineer’s Certificate
        • Form 2A – Engineer’s Certificate on Quality Assurance submitted annually
        • Form 3 – CA Certificate
        • Form 5 – Annual Audit report
      • As a conscious buyer you should verify whether the following documents are filed regularly by the promoter of the project. Non filing of these documents regularly is a red flag and you should be more alert before entering into any transactions with such a promoter.
      • You can get the following documents assessed by your consultant before entering into any transaction.

The MahaRERA website provides a model agreement along with deviations report. Flat Registration Agreements can run into pages and a normal home buyer might not have the time or the ability to read and interpret the details of such an agreement. In future, when a legal dispute arises, it is easy for the Developer to escape due to the fact that certain clauses were added in the agreement that acted as a shield against the legal punishment or due to the fact that certain clauses were not added which could have otherwise protected the home buyer’s interest. RERA on the other hand devised a way to prevent home buyers from falling into such a trap by providing a model agreement that all developers need to follow. In case they decide to make any changes to model agreement they have to provide it clause wise in the deviation report which shall make it easy for a home buyer to locate such a change and make an informed decision as to whether such a clause will favour him or not. Similarly a model allotment letter has also been provided for the developers that they need to follow.

RERA and Income Tax Checklist for a Home Buyer

Prior to the enactment of the RERA regime, Maharashtra Ownership Flat Act, 1963, was in place and it governed the buying and selling of flats. Now, under this regime, if the developer failed to provide you with the possession on the date specified in the agreement you were only given an option to exit the deal, i.e., the contract would be terminated and you could claim interest on the refunded amount. On the other hand, under the RERA regime, you are allowed to an Interest for the delayed portion without termination of the contract. So, whereby in the old law, it was necessary to rescind the contract in order to claim compensation for delay, under the RERA regime you have either the option of termination of contract and compensation for delay or only to claim the interest on the delayed portion without termination of the contract.

Also, as an informed home buyer, you should know that a developer is responsible for 5 years from the date of handing over the apartment, for any structural defects in the apartment as a result of poor quality of work or bad workmanship.

Both of the above facts are incorporated in the model agreement and you should always look at the deviations report to make sure any of such provisions are not amended unreasonably out of your favour by the developer in agreement.

Also, an important thing to remember is that in case you purchase a flat from an existing allottee before the handing over of the possession, you will be subject to the same rights that the first buyer of the property has.

Now, let us move to the next part of our article, whereby we shall see what are the points that you need to take care pertaining to Income Tax while purchasing an apartment.

So, the first and the most important thing that every homebuyer has to keep in mind is to deduct TDS. A bunch of questions might come up in your mind. What is the rate at which I have to deduct TDS? On what amount do I have to deduct TDS? Do I need to obtain a TAN number?

Let us take these questions one by one. The first question that you need to ask yourself is whether the seller from whom you are purchasing your flat is a resident or a non-resident

So, when as a buyer are you liable to deduct TDS?

Answer is when you buy an immovable property other than Agricultural land for a consideration greater than ₹ 50 lakhs or when the stamp duty value of the property you buy is greater than ₹ 50 lakhs and you purchase the property from a resident buyer.

In case you purchase the property from a Non-resident Buyer then you are liable to deduct TDS irrespective of the Sale Consideration.

After you have determined whether you are liable to deduct TDS or not, the next big question is at what rate?

Case 1 : Seller is resident

If the seller is a resident, the rate of TDS will be 1% on the Total Selling price or Stamp duty value whichever is higher. Moreover, you will not be required to obtain a TAN number and having a PAN number is enough. For the above rate of 1% to be applicable you have to ensure that the seller provides their PAN number to you. Also, you will file the TDS return under form 26QB.

Case 2 : Seller is Non resident

If the seller is a non-resident, then things get a bit complex. In case the seller has owned the property for more than 2 years, then a rate of 20% (plus cess and surcharge) will be deducted. In case the property is held for less than 2 years, the TDS shall be deducted at a rate of 30% ( plus cess and surcharge). Ideally, the TDS in this case should be deducted on capital gains, but the gains shall be calculated by the income tax officer. In case the same is not calculated by the Income Tax Officer, it would be safe to deduct the TDS on the entire Selling consideration.

The seller can obtain a lower deduction certificate under section 197 through Form 13.

Also, in this case you will be required to obtain a TAN number. The form in which you will file the TDS return is form 27Q.

JOINT OWNERSHIP AND TAX IMPLICATIONS

In case you have bought your house on loan and are paying an EMI, it is advisable to purchase the flat jointly with your spouse or any other family member. As a result both of you can avail the benefit of deduction of Interest u/s 24(b) up to ₹ 2 lakhs each. In case the annual interest amount is more than ₹ 4 lakhs, option of adding more joint owners can be considered.

Also, an important fact to be considered is, merely adding the name of a person in the purchase agreement, won’t make them a joint owner under the Income Tax Law. It is important that the payment for the property is made by them, to consider them as joint owners under the Income Tax Act, 1961.

Also, during the sale in future, the capital gain shall be divided among the joint owners and as a result lower or no surcharge shall be applicable in case the proceeds of sale are large.

Other Important Points to keep in mind

  • Ensure that the Stamp duty value, also known as ready reckoner rate in common parlance, is not more than 110% of the Agreement value (i.e. the value mentioned in your purchase agreement). In case it is then you will have to pay tax under Income from other source for the difference between the Agreement Value and the Stamp Duty Value as per the Slab rate.

For e.g., the stamp duty value pertaining to the property you are purchasing is ₹72,00,000, then you should ensure that your agreement value is not lower than ₹65,45,455. Since,65,45,455 * 110% = 72,00,000. If your agreement value is lower than ₹65,45,455 then you will pay tax at Slab rate under IFOS for the difference between the agreement value and the stamp duty value, which in this case is 72 lakhs. So, if your agreement value is 62 lakhs, then as a buyer you will have to pay tax on ₹ 10 lakhs(72 lakhs – 62 lakhs) at Slab rates.

  • In case there are 2 or more Buyers, TDS has to be deducted separately by each buyer under their own PAN number or TAN number as the case may be.
  • TDS has to be deposited within 30 days from the end of the month in which TDS has been deducted in case the seller is a resident. TDS has to be deducted on each payment made, and deposited before the 7th of the subsequent month in which the TDS has been deducted in case of a Non-resident.

Through the above article, we studied what should be done on your part as an informed buyer, under the RERA regime and Income Tax Act. Now, you are well equipped to face the headwinds on your journey to buying your dream home. You are now a smart and well-informed home buyer.

Share this article with anyone on this journey similar to yours and help them become a smart and Informed home buyer.

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DISCLAIMER: The basis of this article is the Income Tax law and RERA Law in India as on the date of writing this article. The article is for informational purpose only and is solely aimed at providing the reader an insight to the homebuyer on real estate. No part of this article shall be construed as any kind of legal advice.

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One Comment

  1. S K SINGAL says:

    What are the time limits for RERA to decide Complaints of non/delayed handing over of possession by Builder/Developer ?
    What remedy against RERA which sleeps over concluded proceedings and not issuing its FINSAL order in such Complaints whereas the erring Builder continues to enjoy 95% payments received from suffering Buyers for over a decade ? Jai Shree Ram !

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