Question: I own one property in Delhi and another property in Simla, which is used, by family members or me whenever we go on holidays. I am likely to inherit some property. What are the implications of tax payment? What is the notified rate of indexation for capital gains tax purposes in the financial year 1999-2000?

Answer: What is exempt under the Income Tax Act is one residential property. If you own more than one property which is used for the purposes of your own residence like the one in Simla, you will be liable to make payment of income tax as if it is let out. You will be liable to make payment of income tax in respect of notional rental income for property at Simla. In future, if you acquire another property or inherit from your relatives, it is better that the inheritance is not in your name, but in the name of other family members who has no property in his/her name. This tax planning will be beneficial even under the Wealth Tax Act as one residential house property without any upper limit is completely exempt from wealth tax.

The indexation number for financial year 1999-2000 is 389.

Question: I belong to an agriculturist family. Recently we have sold sizeable agricultural lands and had to incur substantial outgo by way of tax. I am given to understand that agricultural income within the definition of 2(1a) is exempt from tax.

Answer: In a similar case, the Supreme Court has ruled that income derived from sale of agricultural land could not be treated as agricultural income and would be taxed under the Income Tax Act. The apex court has held that ‘explanation’ to section 2(1a) of the Income Tax Act was inserted to supersede the views expressed by several high courts. The explanation clearly declared that the revenue derived from land “shall not include and shall be deemed never to have included any income arising from the transfer of any land.” Therefore income derived from sale of such agricultural land cannot be treated as agricultural income.

Question: I have entered into an agreement with a property developer for real estate development. After receiving advance money, I had to wait inordinately as the builder is now citing financial constraints as the main reason for delay in construction. What is the remedy available to me?

Answer: In the absence of information on specific period within which the construction has to be completed, it is not clear from your query, whether the period has expired. If it has already expired, there would certainly be a ground for cancellation of the agreement for non-performance. In case a specific time schedule is mentioned, you could ascertain whether any deviation has taken place in which case there can be an earlier cancellation for non-performance by notice along with refund of the advance after deducting amounts due to you, if any, under the contract.

Question: I own a property having a building on it in Kerala. It is given on lease to a company for a car show room at the rate Rs.25,000/- per month. I availed a loan from a nationalised bank and constructed a house now. I am planning to pay the loan installments from the monthly rent of the property. Am I eligible for any discount on income tax and if so how much tax shall I pay in this case. I heard that, recently, there was a revision in the income tax law (last budget) by which there is an exemption for the installments paid for housing loans.

Answer: The Union Budget for the fiscal 2001-02 has hiked the maximum deduction for interest payment on housing loans for self-occupied houses to Rs 1.5 lakh per year. The stipulation is that the capital should have been borrowed on or after April 1, 1999 for the acquisition and construction of a property and such acquisition or construction is completed before April 1, 2003 and to be occupied or occupied by the assessee for his own residence. This amendment will take effect from April 1, 2002 and accordingly will apply in relation to the assessment year 2002-03 and subsequent years.

Further, exemption for income from house property raised from 25 per cent to 30 per cent. Due to rationalization of provisions, there will be only two deductions in future i.e. 30 per cent of the annual value and the interest paid housing loans to construct property.

Question: My wife, my brother, his wife and I are jointly purchasing a house property. Also jointly taking a housing loan from Citibank (They have agreed to provide the loan). Can all four of us claim IT deductions of Rs 1.5 lakh on interest paid on home loans? If no, can the agreement be broken in to four parts to claim this benefit? Is housing loan from Citibank eligible for IT deduction of Rs 1.50 lakh towards interest amount?

Answer: While investing jointly to buy a property by more than one family member, it is important to ensure that each co-owner must make his or her own funds. In other words, the investment must be pro rata in tune with the percentage of ownership in the property. Similarly, there must be a specific mention of the percentage of ownership of each joint purchaser in the conveyance or sale deed.

If these factors are carefully taken into consideration, then there will be a separate liability for both income tax and wealth tax purposes on each of the joint owners of the property. If the joint owners avail home loans and invest pro rata, then they can claim IT deduction on interest paid for home loans. Housing loan taken from any institution is eligible for IT deduction. Even a loan could be taken from another joint purchaser or from any other person. In the event of availing a loan from a very close relative, a reasonable rate of interest must be charged on the loan amount.

Question: I am supposed to be an heir to the property of my father along with my brother and sister. As per my father's Will I and my brother have only 'life-time' interests in a house, which is the property inherited. My sister who stays in a portion of the house is to continue to live there as per the Will. The other half of the house is rented out and as per the Will the rental amount is to be used for the maintenance of the house. Later on the property is to go to my father' grandchildren.

Under the circumstances, I wish to know if I would be chargeable to any income tax or wealth tax as I am supposed to be one of the heirs, although I am not deriving any income from the property. Secondly what is meant by 'life-time' interest, in the absence of any right or income from the property as stipulated in the Will?

Answer: ‘Life time’ interest means that you have no right to sell or mortgage or create any charge over the property and you can only enjoy the benefits of the property. As far as income-tax is concerned, you will be entitled for deduction of a minimum interest towards maintenance of the property and the balance is income accrued to you during the financial year. There is no wealth-tax as transfer of assets without any consideration can be made by Will without attracting the clubbing provisions.

Question: I own a commercial property in Bangalore and would like to gift the property to one of my relatives in India. Is any permission required from the government authorities? Can I transfer a similar property to another relative who is a person of Indian origin resident outside India?

Answer: With the introduction of FEMA, a person of Indian origin resident outside can transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

Question: My family members bought residential properties four years ago by investing through NRE accounts. We would like to repatriate the original investment made in foreign exchange. Is RBI permission required and if so, what are the formalities to be completed?

Answer: In the event of sale of immovable property other than agricultural land / farm house / plantation property by NRIs, the authorized dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied (a) the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations; (b) the sale takes place after three years from the date of acquisition of such immovable property or from the date of payment of final instalment of consideration for its acquisition, whichever is later; (c) the amount to be repatriated does not exceed (i) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in FCNR account or (ii) the foreign currency equivalent, as on the date of payment, of the amount paid where such payment was made from the funds held in NRE account for acquisition of the property ; and (d) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

Question: I have let out my apartment to a tenant in Pune and the apartment owners’ association has threatened to disconnect the common services in case of default of payment of maintenance charge. Can the association do that and is it legally valid?

Answer: This should be seen within the parameters of rules and regulations for common enjoyment, which pre-suppose that each and every apartment owner must so enjoy his apartment and the common area so as not to interfere with the peaceful possession and enjoyment of other apartment owners.

If such a clause has been provided in the byelaws of the apartment owners’ association, then it is binding on every owner to obey the rules. Failure to obey will certainly entail enforcement of right by cutting off the facilities if rules and regulations provide for the same.

Question: What is the current ceiling on Wealth-tax? Does the exemption include a portion of the house in the case of joint-owners of property and rented house?

Answer: The ceiling continues to be Rs 1.5 million and Wealth tax is payable by a resident as well as non-resident on the net taxable wealth exceeding Rs 15 lakh at one per cent. One residential house is exempt from wealth tax without any upper limit. This exemption also applies to one house or a portion of the house. In the case of joint owners of property, each co-owner will be in a position to avail the wealth tax exemption in respect of the portion of ownership held in the property. If a house is let out for at least 300 days in India in a year, then also the entire value of such residential house property is fully exempt from Wealth tax.

Question: We have inherited our family property in Delhi and are looking for alternate investment options to better utilize it. We did remit earlier a portion of the investment from the UAE but did not file declaration with the RBI? Are we now entitled for repatriation if the house is sold and what is the procedure to obtain repatriation?

Answer: NRIs holding Indian passports and Indian origin holding foreign passport can now buy, sell and repatriate sales proceeds of immovable property bought on or after May 26, 1993 for upto two residential properties and unlimited commercial properties.

As far as inherited properties are concerned, they won’t be eligible for repatriation as they were bought out of rupee funds. It is not clear from your query as to when a portion of the investment was made from UAE for the property whether prior to May 26, 1993 or subsequently.

In a major change, the government has done away with the forms IPI-1-8 and there is no need to obtain prior permission or declaration to the Reserve Bank. The authorised dealers of foreign exchange have been empowered to deal with the repatriation procedures and remit foreign exchange to any destination outside India in US dollars.

Question: A group of investors would like to invest in real estate development in Kerala. Do the recent liberalization rules permitting FDI investment in township projects includes NRIs as well?

Answer: The Union Cabinet has cleared 100 per cent foreign direct investment (FDI) in select areas including township projects. Township development would involve infrastructure development like roads and bridges and not just houses. The decision is a clear indication of the government’s seriousness in meeting the target of $10 billion FDI a year. However, township development is not on the automatic route and would be subject to case-by-case clearance. The Ministry of Urban Development is expected to issue detailed guidelines shortly.

For NRIs, the 100 per cent investment scheme is already available in areas like housing and real estate (only NRIs/OCBs are allowed to invest in specified areas). The companies in India are allowed to issue shares to the extent of 100 per cent of its fresh capital to Persons Resident Outside India. Under the non-repatriable scheme, the Reserve Bank has permitted an NRI or a Person of Indian Origin resident outside India to invest without any limit by way of contribution to the capital of a firm or a proprietary concern in India subject to certain conditions. The prohibited areas are agricultural/plantation activities or construction of farmhouses or dealing in Transfer of Development Rights. No purchase of shares or convertible debentures of an Indian company shall be made if the company concerned is engaged in such activities.

Question: I am a partner in a firm involved in the real estate development activity. Due to differences and mounting liability, the firm is being dissolved. The assets of the partnership firm include an immovable property. In arriving at the rights and liabilities is there a need to execute registered sale deeds? Will it attract stamp duty?

Answer: There are exceptions to the general rule of transfer in order to acquire the title. One such instance is partnership firm. In the case of partnership firm, it is not necessary that only registered sale deeds should be executed by the firm in favour of individual partners. There can be a deed of dissolution allotting immovable property as part of mutual adjustment of rights and liabilities. In such a situation, the deed need not be registered nor will it attract stamp duty and it will confer valid title on the partner.

Question: I have immovable property and my minor son has inherited immovable property. I am a tax assessee in India and for clubbing provisions will both the properties be taken into account as both are self-occupied by family members? What is the method of computation of cost price in the case of inherited property?

Answer: Generally minor’s income is first computed in his hands and it is only the taxable income which is being clubbed. However, only one house is exempt from income tax even though in your case both the properties are self-occupied.

The cost of acquisition in the case of inherited property would be the cost, which would have been determined for the person whose asset has been inherited. The same principles that govern the determination of sale price of an ordinary taxpayer also govern in your case. First, the year of purchase by the previous owner has to be determined. The cost price is further increased as per the index of cost inflation in the intervening years. This would result in substantial saving in payment of capital gains tax.

Question: I have acquired the citizenship of Canada. I would like to buy property for my parents stay in Bangalore out of foreign income. Can I sell this property at a later date and repatriate sale proceeds as per the rules? Is RBI permission required?

Answer: With the passing of the FEMA, 1999 the RBI has done away with the forms IPI-1 to IPI-8 relating to the acquisition and transfer of immovable property in India by NRIs. There is no need even to declare to RBI now. This includes NRIs holding foreign passport as well who have been given general permission to acquire immovable property by way of purchase or transfer or inheritance or gift (other than agricultural / plantation property / farm house).

As regards repatriation of sale proceeds, authorised dealers have been permitted to allow remittance of sale proceeds of property. In the case of residential property, repatriation is restricted to only two properties after a lock-in period of three years.

Question: Our family is owning a large chunk of land. Is it liable to wealth-tax? Are there exemptions to this rule.

Answer: Assuming land held in urban areas, among the listed items prescribed for levy of wealth-tax include urban land which means any land located within municipal limit or notified periphery. It is altogether a different case in cases where construction is not permissible under any law on such land or such land is held for first two years of ownership for industrial purposes. Another exemption is also available in cases where it can be held for the first three years of ownership as stock-in-trade in real estate business.

Question: The Budget for 2001 has done away with the requirement of obtaining clearance certificate from the IT authorities. When does it take effect? What are the highlights of the recent budget?

Answer: Under the existing provision of section 230A, any document purporting to transfer, assign, limit or extinguish the right, title or interest of any person to, or in a property valued at more than Rs 5 lakh cannot be registered unless the Assessing Officer certifies that such person has either paid or made satisfactory provision for payment of all existing tax liabilities or that the registration of the document will not prejudicially affect the recovery of any existing tax liability.

The Union Budget for fiscal 2001-02 has omitted the said section and this amendment will take effect from June 1, 2001.

Other highlights of the budget include enhancement of deduction for interest payment on housing loans for self-occupied houses to Rs 1.5 lakh per year, exemption for income from house property raised from 25 per cent to 30 per cent and simplification of administrative procedures. Rationalisation of provisions will provide for only two deductions - 30 per cent of the annual value and the interest paid on capital borrowed.

Question: While buying an apartment from a builder, I requested for a car park. I paid the money but a clause in the agreement says that the builder has the right to enter the premises. I am perturbed with this clause and confused about the exact right that is conferred with regard to utility?

Answer: Usually after the completion of the building and handing over, the builder does not enjoy any right over it. Yours is an unusual situation. In the absence scrutinising the agreement on what are the consideration and the basis on which the builder assumes such an extraordinary right, it is difficult to provide a clear answer in your case. As the situation stands now, no title is vested in you with regard to the car park. In fact a mere right to use has been granted. The best way to this vexatious question is to ensure that the right to access forms part of the conveyance by a registered sale deed.

Question: I bought a flat with housing loan from a company at a higher interest rate. Another company is willing to take over the existing loan at a competitive interest rate. Can I go ahead with this arrangement? What are the implications?

Answer: With fierce competition among various housing finance companies, it has become a common practice to switchover loans by the borrowers. You can switchover the loan arrangement from one company to another. It is better to discuss with the existing company the motive behind your switchover as these days no existing company wants to lose an existing customer. It may even offer you alternate and viable option.

Question: My family lives in India in an apartment complex. The sizes of apartments vary in the same complex. Ours is the smallest apartment in the complex. What is the basis of computation of maintenance charges under such circumstances?

Answer: The maintenance charge is usually based on the basis of actual area owned whether occupied or not. That is the only equitable and fair method of apportionment recognised also by the law. The actual area will be the only criterion for determining the maintenance charges.

Question: I am a European passport holder of Indian origin. My bachelor brother died intestate. He owned a flat in Mumbai which was transferred to my mother’s name after receiving disclaimers from surviving heirs. Now I intend paying my two brothers one third each the value of the flat. Please inform me the procedure to be followed and if the sales proceeds will be repatriable if I pay them from my NRE funds. I wish to have clear title to the flat so please also inform if any other requirements are recommended.

Answer: Assuming that it is self-acquired property, a deed of settlement could be executed before the appropriate registrar. This enjoys concessional stamp duty as the transaction is within the members of the family. As the acquisition is through transfer of funds from abroad through normal banking channels, the original investment made in foreign exchange can be repatriated after a lock-in period of three years. It is suggested to complete form IPI and forward to Chief General Manager, Reserve Bank of India, Exchange Control Department, Foreign Investment Division, Central Office, Mumbai within 90 days of the date of acquisition. You will be glad to know that the authorised foreign exchange dealers have now been empowered to deal with the repatriation of sale proceeds directly without reference to RBI.

Question: The housing loan was availed by me in 1998 to buy a flat in Mumbai. With the recent budget enhancing the interest limit to Rs 1.5 lakh, am I eligible for the enhanced deduction on capital borrowed from housing finance company? I am an income-tax payee in India.

Answer: The enhanced deduction on capital borrowed for exemption takes effect from assessment year 2002-03 in respect of properties acquired or constructed out of capital borrowed on or after April 1, 1999, with the acquisition or construction completed before April 1, 2003. The interest taken earlier will be staggered for deduction in five years. In your case, the cap on interest deduction for self-occupied property continues to be Rs 30,000.

Question: I own a plot of land and intend giving this property to my two children in India who want to construct property with their individual investment. How do I proceed and what are the legal and tax implications in this case?

Answer: Assuming that yours is a self-acquired property, you can execute a deed of settlement, which is essentially a gift. Since the Gift Tax Act has been abolished, there will not be any tax implication for you. Once you execute the deed of settlement on a stamp paper and register it before the appropriate registrar, each of your children become the owner of 1/2 of the undivided portion of the land. In view of the relationship of father-children, a concessional rate of stamp duty at four per cent and one percent registration charge is applicable.

Question: We have a family property in Delhi in the name of myself and younger brother. My brother has been living in the house for the past 15 years and of late not allowing us to enter the house. What is the remedy in this case? In case I get my share through sale, can I repatriate the money and what is the procedure?

Answer: As regards inheritance, you have no alternative but to seek legal remedy through filing a suit for the partition of the property before the court for your share in the property. In the event of the property being indivisible then the option is to seek monetary compensation for your share. Regarding repatriation, the rules clearly say that only original investment made in foreign exchange through normal banking channels for two residential units after a lock in period of three years will be allowed for repatriation.

Question: My son intends to pursue his higher education abroad. I have a residential flat worth about Rs 25 lakh in Bangalore. At present I am repaying the housing loan availed earlier. Can it be shown as security to obtain additional finance for studies abroad?

Answer: There are housing finance companies like HDFC and LICHF which extend home equity and home entity loans while simultaneously holding the existing home loan arrangement. The loan is available at 13.25 - 13.75 per cent interest rate for a repayment period of 10-15 years. The documentation formalities are less since they have already been scrutinized for verification of title. Even nationalized banks offer educational loans for higher education abroad but they may insist on first mortgage of the property which in your case will be difficult to obtain.

Question: I am the owner of a vacant plot of land measuring 10,000 sq ft in Pune and a builder is keen for a joint venture on 50:50 basis. While 50 per cent of the area will be sold, the other 50 per cent will be retained by me for personal use. How the common areas like car park, staircase, water tank, etc to be considered? Please advise.

Answer: While entering into joint venture, it should be made clear that your share of plinth area of 10,000 sq ft will not include the allocation for common areas like stair case, car park, water tank, etc. These are included in the super-built up area which will be the plinth area plus common areas. By applying the same yardstock, the same percentage will be apportioned for common areas for yourself and the builder.

Question: I have a power of attorney to a flat and the formalities with regard to transfer and cooperative society are not completed though I have paid the amount. The property does generate income at present. From the taxation point of view, who will be assessed?

Answer: Section 22 of the Income-Tax Act specifies that the liability is on a person who receives or entitled to receive the income from the property in his own right and the requirement of registration is not warranted. Subsequent amendments and clarifications by the department and the judgements of courts amply goes to prove that the ‘owner’ is a person who is entitled to receive income from the property in his own right. Under the circumstances, it will be taxed in your hands and not from other sources.