A Legal Overview on Indian Real Estate

Prepared by:- Mr. Vishu Kushwaha

REAL ESTATE

An Introduction

Figure 1 Source: DTCP, GoAP (1972)

The term real estate is defined as land, including the air above it and the ground below it, and any buildings or structures on it. It is also referred to as realty. It covers residential housing, commercial offices, trading spaces such as theatres, hotels and restaurants, retail outlets, industrial buildings such as factories and government buildings. Real estate involves the purchase, sale, and development of land, residential and non-residential buildings. The main players in the real estate market are the landlords, developers, builders, real estate agents, tenants, buyers etc. The activities of the real estate sector encompass the housing and construction sectors also.

The real estate sector in India has assumed growing importance with the liberalization of the economy. The consequent increase in business opportunities and migration of the labor force has, in turn, increased the demand for commercial and housing space, especially rental housing. Developments in the real estate sector are being influenced by the developments in the retail, hospitality and entertainment (e.g., hotels, resorts, cinema theatres) industries, economic services (e.g., hospitals, schools) and information technology (IT)- enabled services (like call centers) etc. and vice versa.

The real estate sector is a major employment driver, being the second largest employer next only to agriculture. This is because of the chain of backward and forward linkages that the sector has with the other sectors of the economy, especially with the housing and construction sector. About 250 ancillary industries such as cement, steel, brick, timber, building materials etc. are dependent on the real estate industry.

Indian Real estate sector is one of the most thriving industries of the present times. And if industry experts are to be believed, the prospects of Indian property market is going to attract all major investors to this vast land of opportunities in coming years thereby giving a boost to already raising foreign direct investment.

The Government of India has taken positive initiatives by offering the best in terms of real estate investment, by altering its FDI policies from time to time. With better infrastructure and availability of world class facilities, property in Indian prominent cities are the most sought after proposition. No wonder, this part of the globe i.e. India will emerge as the ultimate place for investment in contemporary retail, residential or commercial space in coming years.

The boom in the sector has been so appealing that real estate has turned out to be a convincing investment as compared to other investment vehicles such as capital and debt markets and bullion market. It is attracting investors by offering a possibility of stable income yields, moderate capital appreciations, tax structuring benefits and higher security in comparison to other investment options.

With property boom spreading in all directions, real estate in India is touching new heights. However, the growth also depends on the policies adopted by the government to facilitate investments mainly in the economic and industrial sector. The new stand adopted by Indian government regarding foreign direct investment (FDI) policies has encouraged an increasing number of countries to invest in Indian Properties.

India has displaced US as the second-most favored destination for FDI in the world. The positive outlook of Indian government is the key factor behind the sudden rise of the Indian Real Estate sector - the second largest employer after agriculture in India. The growth curve of Indian economy is at an all-time high and contributing to the upswing is the real estate sector in particular. Investments in Indian real estate have been strongly taking up over other options for domestic as well as foreign investors.

Why Invest In Indian Real Estate?

The Indian real estate sector still occupies a pivotal position in terms of the multiplier effect on the economy, if you compare it with other major sectors. This position is also supported by the confidence which has been instilled by the government policies. Infrastructure sector such as roads, ports, railways and airports has been given a broad framework to enhance, during the 12th five year plan (2012-2017). Mostly via public private partnerships (PPPs).

There are a number of key factors which is driving the real estate sector to new heights in India include: Rapid urbanization; Rising income levels; Strong growth in Indias tourism sector; Growth of the service sector; Population growth; Positive demographics; Increased foreign investments; Growth of the Indian middle class; Entry of international retailers in India; Influx of multinational companies; Growth in organized retail; Increasing demand from Non Resident Indians (NRIs)

LEGISLATIVE ISSUES

Various Laws Involved in Real Estate Transactions

The various laws governing the real estate transactions have been abridged as follows:

The Indian Contract Act, 1872. The Transfer of Property Act, 1882. oThe Indian Registration Act, 1908. oThe Specific Relief Act, 1963. The Urban Land (Ceiling & regularization) Act, 1976. The Land Acquisition Act,2013. o The Indian Evidence Act, 1872. o The Indian Stamps Act, 1899. The Rent Control Act. The State Laws governing the real estate. The Consumer Protection Act, 1986 The Arbitration & Conciliation Act, 1996 Income Tax Act, 1961. The Wealth Tax Act, 1957 The Co-operative Societies Act, 1912 The Multi-state Co-operative Societies Act, 2002

The Laws applicable to Real Estate Business can be divided in five groups:

1. Land Related Laws2. Environment Laws3. Construction Laws4. Registration Laws5. Labour Laws

Provisions of other laws in consonance with the LARR 2013:

The LARR Act 2013 exempted 13 laws (such as the National Highways Act, 1956 and the Railways Act, 1989) from its purview. However, the LARR Act 2013 required that the compensation, rehabilitation, and resettlement provisions of these 13 laws be brought in consonance with the LARR Act 2013, within a year of its enactment, through a notification.The Ordinance brings the compensation, rehabilitation, and resettlement provisions of these 13 laws in consonance with the LARR Act 2013.Exemption of five categories of land use from certain provisions:The Ordinance creates five special categories of and use:(i) Defense,

(ii) Rural infrastructure,

(iii) Affordable housing,

(iv) Industrial corridors,

(v) Infrastructure projects including Public Private Partnership (PPP) projects where the central government owns the land.

The LARR Act 2013 requires that the consent of 80% of land owners is obtained for private projects and that the consent of 70% of land owners be obtained for PPP projects. The Ordinanceexempts the five categoriesmentioned above from this provision of the Act.In addition, the Ordinancepermitsthegovernment to exempt projects in these five categoriesfrom the following provisions, through a notification:

The LARR Act 2013 requires that aSocial Impact Assessmentbe conducted to identify affected families and calculate the social impact when land is acquired.The LARR Act 2013 imposes certain restrictions on the acquisition of irrigated multi-cropped land and other agricultural land. For example, irrigated multi-cropped land cannot be acquired beyond a limit specified by the government.Return of unutilised land: The LARR Act 2013 required that if land acquired under it remained unutilised for five years, it was returned to the original owners or the land bank. The Ordinance states that the period after which unutilised land will need to be returned will be five years, or any period specified at the time of setting up the project, whichever is later.Time period for retrospective application: The LARR Act 2013 states that the Land Acquisition Act, 1894 will continue to apply in certain cases, where an award has been made under the 1894 Act. However, if such as award was made five year or more before the enactment of the LARR Act 2013, and thephysical possessionof land hasnot been takenorcompensation has not been paid, the LARR Act 2013 will apply.The Ordinance states that in calculating this time period, any period during which the proceedings of acquisition were held up: (i) due to a stay order of a court, or (ii) a period specified in the award of a Tribunal for taking possession, or (iii) any period where possession has been taken but the compensation is lying deposited in a court or any account, will not be counted.Other changes:The LARR Act 2013 excluded the acquisition of land for private hospitals and private educational institutions from its purview. The Ordinance removes this restriction.While the LARR Act 2013 was applicable for the acquisition of land forprivate companies, the Ordinancechangesthis to acquisition forprivate entities. A private entity is an entity other than a government entity, and could include a proprietorship, partnership, company, corporation, non-profit organization, or other entity under any other law.The LARR Act 2013 stated that if an offence is committed by the government, the head of the department would be deemed guilty unless he could show that the offence was committed without his knowledge, or that he had exercised due diligence to prevent the commission of the offence.

The Ordinancereplaces this provisionand states that if an offence is committed by a government official, hecannot be prosecuted without the prior sanction of the government.

COMPUTATION OF SERVICE TAX ON UNDER CONSTRUCTION PROPERTY

PARTICULARSABATEMENT ALLOWEDTAXABLE COMPONENTNORMAL RATE OF SERVICE TAXEFFECTIVE RATE OF SERVICE TAX ON PROPRTY

FLAT SIZE OVER 2000 sq ft.(carpet area)70%30%14%4.20%

Sale price of flat over Rs 1 crore70%30%14%4.20%

In all other cases except specifically exempted (As mentioned above)75%25%14%3.50%

Land Acquisition Act

189420132014

Social impact assessment(SIA)No ProvisionSIA is a must for every acquisitionNot required if for security, defense, rural infra, industrial corridors and social infra

Consent from affected people No provision Consent of 80% of displaced people required in case of acquisition for private companies and public-private partnerships.Not required if for security, defense, rural infra, industrial corridors and social infra

Multi crop land No provision Only in extreme circumstances, where multi-cropped land has to be acquired at any cost, only 5% of the total multi cropped land in the district can be acquired and not more.

Otherwise, multi-cropped land should not be acquired.Multi-crop irrigated land can also be acquired if for security, defense, rural infra, industrial corridors and social infra.

CHART DEPICTING LINK BETWEEN LIVELIHOOD AND LABOR RIGHTS

Property buying and registration process:

India is home to a very real estate market, land is considered as very strong and viable investment also a home in India has many intrinsic values. Able to buy or built ones own home is a dream for all and hence residential market is always in demand and performs well.

But there are certain boxes which are needed to be ticked before considering to buy a property or to build one. There are certain policies rules and processes which are needed to be taken care of.

Things to be remember when buying land, flat or a house:

Check the land title: many a times dispute over the property arises only because of the land title

Once all the initial checks are made and the land to be bought is properly examined and the negotiation of the price is done, comes the process of actually buying the land.The first step of actually buying the land is to draft an agreement between the parties involved in the transaction. An agreement is made to make sure that none of the parties involved in the transaction change their mind and go back on what has been decided about the transaction.This agreement has to be made on Rs.50 stamp paper.The agreement should cover the following basic things:Agreed cost of the land between seller and buyerAdvance amount given by the buyerTime span in which the actual sale should take placeWhat procedure has to be adopted if any of the parties default on the agreementHow the losses have to be covered if any of the parties defaultParticulars of the landAn experienced lawyer should carefully draft this agreement. Many a times, because of an agreement that is not well drafted it becomes possible for one of the parties to default and get away with it.A long with this agreement, the agreed advance has to be paid by the buyer. After the document is drafted and verified it has to be signed by both parties and two witnesses.The next step is to prepare a title deed. You could get the title deed written by a government licensed Document Writer.Even lawyers can prepare the deed, but the document can only be computer printed or typed, not handwritten. Only those who hold the scribe license can prepare handwritten documents. Make sure all the details mentioned are accurate.

After the agreement is prepared, the next step is RegistrationThe land is to be registered in a sub registrar office. If there is incorrectness in the documents after registering, new documents with the correct details have to be registered and depending on the incorrectness, the registration expenses will have to be repeated.Make sure that the title deed is registered within the time limit mentioned in the agreement.Along with the title deed, the other documents that are required for registration are:Original title deedPrevious deedsProperty/House Tax receiptsTorence Plan (optional) etc. plus two witnesses are needed for registering the property.What is a Torence plan?Torence plan is a detailed plan of the property prepared by a licensed surveyor that will have accurate details of the measurements including width, length, borders etc. This plan is needed only in some specific areas.For land costing more than 5 lakhs, the seller should submit either his Pan card or Form Number 16 during registration.

The Expenses Involved

The expenses involved during registration include Stamp Duty, registration fees, Document writers/lawyers fees etc.The stamp duty will depend on the cost of the property and varies from location to location. 2% will be charged as the registration fees. Document writers fees also depend on the cost of the property and varies with individuals. There is a percentage prescribed by the government as Document writers fee and they cannot charge more than the prescribed limit.

The actual process of registration at the sub-registrars office:Take all the documents mentioned above.Submit the document along with input form at the token window and get the token number.Wait till the token number is announced.On token number being announced, all parties to the document must present themselves before the sub-registrar to admit execution of the document, photographed, thumb impression and signature taken on additional sheet of paper in presence of sub-registrar.Pay the required registration fees and computer service charges in cash as per the receipt (Computer service charges are @ Rs.20 per page)The document will be returned within 30 minutes of getting the receiptYear Policy announcementsIndian real estate performance

2000Press note 2, 2000 100% FDI in hospitals and industrial parks under automatic routeInvestment volumes remains low as the sector is only showing limited growth.

2001Press Note 4, 2001 100% FDI under automatic route in hotelsPrivate developers were limited and the office sector was still to see enough critical mass for attracting significant investment volumes

2003Press Note 3, 2003 100% FDI integrated townships with minimum 100 acres or 2000 dwelling units under FIPB approval route

2005

2008Press note 2, 2005 100% FDI in construction development projects of 50,000 sqm under automatic route Minimum Capitalisation USD 10 millionSEZ Act, 2005

Press Note 3, 2008 100% FDI in established and for setting up of industrial parks without restrictions of Press Note 2, 2005 based on certain criteria /conditionalities 2005 2008 Office net absorption 114mn sq ft PE investment - ~USD 9 Billion IT, Commercial office share -~ USD 3 billion Residential share -~ USD 2.2 Billion

2011Software Technology Parks of India (STPI) Policys Sunset clause 2011-2013 Office net absorption 91 mn sq ft. PE investment -~ USD 4 billion IT, commercial office share -~ USD 1 billion Residential share -~ USD 2 billion

2014Area requirement for 100% FDI in construction development projects reduced to 20,000 sqm

Minimum capitalization reduced to USD 5 million

REIT guidelines and rules Framed by securities and exchange board of India (SEBI)Systematic and regulatory changes on the anvil to create a suitable investment climate.

Changes in FDI policy and REITs likely to bring in more private equity and better access to structured capital

REAL ESTATE TRANSACTIONS IN INCOME TAX ACT, 1961

Real estate transactions are one of the main source for generation and application of black money. The Government is regularly trying to plug loop holes in such transactions by inserting various provisions from time to time in the Income Tax Act and for this number of amendments have been introduced in the Income Tax Act in recent years. The most important amendments in this regard are sections 56(2)(vii), section 50C and section 43CA which covers more or less all types of transactions related to transfer of immovable property. The Finance Act, 2013 has also introduced section 194IA for deduction of tax at source in case of sale of immovable property.

Section 56(2)(vii) of the Income Tax Act, 1961 deals with transfer of an immovable property being received by an Assessee as Capital Assets. Section 50C of the Income Tax Act, 1961 deals with consideration amount received on transfer of immovable property held as Capital Assets. Section 43CA of the Income Tax Act, 1961 deals with consideration amount received on transfer of immovable property other than Capital Assets. Section 50C of the Income Tax Act, 1961 is applied in case of Capital Gain whether Short Term or Long Term. Section 43CA of the Income Tax Act, 1961 has been introduced in the Income Tax Act, 1961 by the Finance Act 2013 w.e.f. 1-04-2014. This section has made all the hue and cry among the real estate dealers.

Section 56(2)(vii) of the Income Tax Act, 1961

"(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons

(b) any immovable property,

(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:

Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:

Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property"

Salient features of Section 56(2)(vii) of the Income Tax Act, 1961

1) The section applies only to individuals and HUFs. Transactions related to purchase of property by company, partnership firm, LLP, Trust, AOP, AJP are out of the purview of this section.

2) The stamp duty value of immovable property should be more then Rs.50,000/- if property is transferred without any consideration.

3) The difference in stamp duty value and consideration amount received should be less then Rs.50,000/- if the immovable property is transferred without inadequate consideration.

4) In case of point no 2 above, stamp duty value shall be treated as deemed consideration for the purpose of Income Tax.

5) In case of point no 3 above, stamp value shall be treated as deemed consideration for the purpose of Income Tax, if the value of stamp duty is higher than consideration value by more than Rs.50,000/-

6) If the consideration amount has been paid by mode other than cash either partly or fully in the year of agreement prior to the year in which the registration of the property is done, the stamp value of the property of the year in which agreement to sell was executed shall be treated as deemed consideration in the year of registration for the purpose of Income Tax.

Section 43CA of the Income Tax Act, 1961

"(1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

(2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1).

(3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section(1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement.

(4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received by any mode other than cash on or before the date of agreement for transfer of the asset."

Salient feature of Section 43CA of the Income Tax Act, 1961

1) This section applies to trading assets and not to capital assets.

2) The consideration value should be less then stamp duty value.

3) If the consideration amount has been paid by cheque either partly or fully in the year of agreement prior to the year in which the registration of the property is done, the stamp value of the property of the year in which agreement to sell was executed shall be treated as deemed consideration in the year of registration for the purpose of Income Tax.4) Controversial Issue

A controversy has arisen in respect of applicability of year of this section. Whether this section applies in the year when agreement to sale was made and possession has been given or when the conveyance was registered. Let us take an example.

A has sold a flat to B in Financial Year 2010 2011 for a consideration of Rs.50 lakhs. An Agreement to Sale was made between A and B. The possession of the flat was given by A to B during the financial year 2011 2012. The sale deed was executed in June 2013 and stamp duty was paid at a value of Rs.75 Lakh by the buyer. A has already booked the sale in its accounts in the year 2011 2012 and have filed its return of income and have paid tax there on. Now the question arises that after insertion of section 43CA is A liable to pay further tax on difference between consideration amount and stamp duty value as sale deed was executed in the current financial year?

Section 43CA of the Income Tax Act, 1961 applies when the immovable property is transferred. In the Income Tax Act, transfer in relation to capital assets has been defined in section 2(47) of the Income Tax Act, 1961. In case of trading assets, the Act is silent and therefore, we will have to look in to the Transfer of property Act, 1882. Section 5 of the Transfer of Property Act deals with Transfer of immovable Property. The said section is reproduced below

Transfer of Property means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and to transfer property is to perform such act.

In this section living person includes a Company or Association or Body of Individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by Companies, Associations or Bodies of Individuals.

Hence, transfer of property takes place only when it is conveyed. Section 53A of Transfer of Property Act, 1882 is not applicable in case of section 43CA of the Income Tax Act, 1961 because it relates to capital assets as per provision of section 2(47) of Income Tax Act, 1961. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of immovable property as held by the Honble Apex Court in the case of Alapati Venkataramiah Vs. Commissioner of Income Tax, Hyderabad reported in 57 ITR 185. Until and unless the title of the property is passed to the purchaser, there cannot be a sale or transfer of immovable property. Reliance can also be placed in deuces ion By: ITAT, Bench `A, Chennai, in the case of R.Gopinath (HUF) v. ACIT, Appeal No: ITA Nos. 29 & 30/Mds/2008, decided on July 24, 2009.

As per provision of section 5 of Transfer of Property Act 1882, and also as per the above decisions, in my view in the above mentioned example, A will have to pay more tax on the difference in value of stamp duty and consideration amount as per provision of section 43CA of the Income Tax Act, 1961 for the assessment year 2014 2015.

Development Agreements

In case of development agreement for an immovable property, Long Term Capital Gain may arise as per section 2(47) of the Income Tax Act, 1961, if the land is capital assets, Section 43CA of the Income Tax Act, 1961 in case of development agreement at the time of possession does not apply.

We must also look it to Section 50D of the Income Tax Act, 1961 which has come in to operationw.e.f 01-04-2013 only in respect of taxability of development agreement.

Section 50D of the Income Tax Act, 1961

Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.

The conditions for applicability of provision are:

Consideration must be received or accruing if consideration is not received or accrued in the previous year, then provision will not apply. For example, if a consideration or part of consideration shall be received or accrued in future, then the provision will not apply. In case a developer will provide some of constructed area, to land owner, on completion of project, then the consideration to be received in kind in future, is not consideration received or accrued, therefore, in such cases the provision of Section 50D of the Income Tax Act, 1961 will not be applicable.

There must be transfer of capital asset if there is no transfer, then this section will not apply. Here transfer of capital asset can mean a definite and absolute transfer. A transfer of some of rights for limited purposes cannot be regarded as transfer of capital asset in the context of tax on capital gains. There should not be a situation of contingent transfer which can be revert back on some contingencies. The transfer must be full and final. Readers are requested to go through definition of transfer in relation to a capital asset provided in section 2(47) of the Income-tax Act, 1961 and also to see exemption from meaning of transfer as provided in section 47 of the Act.

Consideration should not be ascertainable or cannot be determined thus if consideration can be ascertained or determined, even in future, then this provision may not be applicable. For example, if a part of consideration will be given in kind, say some of constructed area in a project, then the situation is one in which consideration will be received and it will be ascertainable in future so in such situation Section 50D of the Income Tax Act, 1961 may not be applicable depending on facts of the case.

This provision is only for the purpose of computing income chargeable to tax as capital gains. This provision is not applicable in case of business income or income falling under head other sources or income from house property etc.

In case of Joint Development Agreements where development rights for identified land are exchanged for a specified percentage of built up area in the project, there is no way of determining the value of consideration at the time the development rights are transferred. However, post the proposed amendment, the FMV of the development rights or the built up area may be determined and the gains shall be liable to capital gains tax. The basis which the FMV is required to be determined has not been specified.

Therefore, the insertion of Section 50D may have significant implications.

When the incidence of capital gain tax arises?The point where the capital gain is deemed to accrue will purely depend on the terms of Joint

Development Agreement. Where the agreement is of such nature that possession is given in part performance of a contract, the liability of capital gain tax will arise on the handing over of such possession to the builder.

If the possession is not transferred but deferred until the construction is completed, the liability to capital gain tax will arise in the year in which the developer completes the construction.

Applicability of Capital Gain if Development Agreement breaks down

If the developer is liable for the breaking down of joint development agreement, then either the landowner will get compensation from the developer for the breach of contract or developer have to do specific performance as per the terms of the Joint Development Agreement, in both cases landowner will acquire. And, for charging what landowner has acquired from the developer under capital gain tax, it should first come under the definition of capital asset. Reliance can be placed in CIT vs Vijay Flexible Containers [1990] 186 ITR 691 (Bom.) and K. R. Srinath vs ACIT, [2004] 141 Taxman 268 (Mad).

TDS on sale of immovable property

The Finance Bill, 2013 has introduced a new section 194-IA providing for TDS @ 1% to be deducted by purchaser. In case valid PAN of seller is not available, tax deduction will be at higher rate of 20%. This is applicable w.e.f. June 01, 2013 for sale of immovable property (other than agricultural land) where consideration is Rs. 50 Lakhs and above. The purchaser is exempt from the obligation to obtain TAN, which is otherwise mandatory for all Deductors.

Agriculture Land and TDS

It may be noted that the Agricultural Land has been excluded from the ambit of this new provision, however all agricultural lands are not excluded and that the agricultural land which is comprised within the jurisdiction of a municipality having population between 10,000 to 1,00,000 as well as land which is not more than 2 Kilometres or has population between 1,00,000 to 10,00,000 as well as land which is not more than 6 Kilometres or population above 10,00,000 as well as land which is not more than 8 Kilometres of the local limits of any municipality would come within the purview of making compliance as per the above section 194LA and thus in respect of this category of agricultural land the formalities of TDS are required to be complied with.

CBDT has issued Notification No. 39/2013 on 31st May 2013 amending rules to simplify procedure for complying with provisions of this new section.

In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:

1. (1) These rules may be called the Income-tax (Fifth Amendment) Rules, 2013.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962, (hereinafter referred to as the said rules) in rule 30,

(a) after sub-rule (2), the following sub-rule shall be inserted, namely:(b) (2A) Notwithstanding anything contained in sub-rule (1) or sub-rule (2), any sum deducted under section 194-IA shall be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No.26QB.;

(b) after sub-rule (6), the following sub-rule shall be inserted, namely:

(6A) Where tax deducted is to be deposited accompanied by a challan-cum-statement in Form No.26QB, the amount of tax so deducted shall be deposited to the credit of the Central Government by remitting it electronically within the time specified in sub-rule (2A) into the Reserve Bank of India or the State Bank of India or any authorised bank.;

(c) after sub-rule (7), the following sub-rules shall be inserted, namely:

(7A) The Director General of Income-tax (Systems) shall specify the procedure, formats and standards for the purposes of remitting the amount electronically to the Reserve Bank of India or the State Bank of India or any authorised bank and shall be responsible for the day- to-day administration in relation to the remitting of the amount electronically in the manner so specified.;

3. In rule 31 of the said rules,(a) after sub-rule (3), the following sub-rule shall be inserted, namely:

(3A) Notwithstanding anything contained in sub-rule (1) or sub-rule (2) or sub-rule (3), every person responsible for deduction of tax under section 194-IA shall furnish the certificate of deduction of tax at source in Form No.16B to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No.26QB under rule 31A after generating and downloading the same from the web portal specified by the Director General of Income-tax (System) or the person authorised by him.;

(b) after sub-rule (6), the following sub-rule shall be inserted, namely:

(6A) The Director General of Income-tax (Systems) shall specify the procedure, formats and standards for the purposes of generation and download of certificates and shall be responsible for the day-to-day administration in relation to the generation and download of certificates from the web portal specified by him or the person authorised by him.;

4. In rule 31A of the said rules, after sub-rule (4), the following sub-rule shall be inserted, namely:

(4A) Notwithstanding anything contained in sub-rule (1) or sub-rule (2) or sub-rule (3) or sub rule (4), every person responsible for deduction of tax under section 194-IA shall furnish to the Director General of Income-tax (System) or the person authorised by the Director General of Income-tax (System) a challan-cum-statement in Form No.26QB electronically in accordance with the procedures, formats and standards specified under sub-rule (5) within seven days from the end of the month in which the deduction is made.;

5. In Appendix-II of the said rules,

(a) after Form No.16AA, the following Form shall be inserted, namely:(b) FORM 16B

TDS on compulsory acquisition of Immovable Property

In respect of compulsory acquisition of immovable property, TDS is also required to be made on compensation amount exceeding Rs 2,00,000/- @10% as per provision of section 194LA of the Income Tax Act, 1961. This section does not apply in case of compensation received for agriculture land.

Hardship in Let out Property

Sections 43CA of the Income Tax Act, 1961 and section 50C of the Income Tax Act, 1961 create problems for genuine Assessees. If a person has a building which is occupied by tenants, cannot fetch market price if sold. Such property can hardly fetch 25% value of the stamp duty value. Such property owner may have to pay tax more than consideration amount being received by him. In future, no one would be able to sell the litigated or let out property. The Finance minister should look in to such problems and should make the appropriate amendment to remove genuine hardship to the immovable property owner.

Hardship in claiming exemption u/s 54 or 54F

In case of long term capital gain on sale of residential house, if the sale consideration is invested in buying another residential house, no capital gain tax will be charged as per provision of section 54 of the Income Tax Act, 1961. But I would like to mention one case in which in spite of availing exemption u/s 54 the Assessee has to bear tax liability.

Mr. A is owner of a residential flat. The acquisition value of said house was for say Rs.25,00,000/- and it's index cost was Rs 50,00,000/-. X sales that flat at Rs.73,00,000/- and buys another flat at Rs.75,00,000/- to claim exemption u/s 54F of the Income Tax Act, 1961. The stamp duty of flat sold is Rs.85,00,000/- and stamp duty value of the house purchased is Rs.90,00,000/-. He will have to bear tax liability on Rs.13,00,000/- u/s 50C of the Income Tax Act, 1961 and Rs.15,00,000/- u/s56(2)(vii) of the Income Tax Act, 1961 plus proportionate tax on capital gain tax for not investing entire sales consideration in new house. Even if he does not claim any exemption he will pay much less tax. So even if the exemption u/s 54 or 54F of the Income Tax Act, 1961 is claimed, the Assessee may not get any benefit due to insertion of these sections such as 50C and 56(vii).

Conclusion

Some of the state governments are revising value of stamp duty continuously and also without looking at real market value in the particular locality. The market price in a particular locality of immovable property may differ due to various factors but the stamp duty value remains the same in a particular locality. The state Government should not think about its own revenue but should also take other factors in to account regarding location of the property.

The assessee should be careful in selling or buying immovable properties. The Assessee should also look in to TDS on sale of immovable property exceeding Rs.50,00,000/-. In light of all the provisions discussed above, it reveals that all types of Assessees are covered by the above mentioned provisions related to Real Estate transactions excepting in case of Companies, Partnership Firm, LLP, Trusts etc., where if an immovable property is bought, stamp duty value has no significance and as such immovable property can be bought at a price below stamp duty value. We hope in the next Finance Bill the Finance Minister may cover the transfer ofimmovable property by persons other than individuals and HUFs under the purview of section56(2)(vii) of the Income Tax Act, 1961 or section 43CA of the Income Tax Act, 1961.

SECTIONASSESSEECONDITIONEXEMPTION

Sec.54Individual/H.U.FLong term residential house to be transferred.

Within the period of 1 year before or 2 year after the date of transfer, a residential house is purchased or with in a period of 3 year a residential house is constructed.

cost of new house or up to C.G

Sec.54BIndividual/H.U.FAgricultural land to be transferred (same must be used in 2 year immediately preceding the date of transfer for agricultural purpose by individual or parents.

Within the period 2 years the date of transfer another agricultural land is purchased.

Cost of new Agricultural Land or up to C.G

Sec.54DAny AssesseLand, building or any right In land forming part of industrial undertaking must be compulsory acquired.Cost of new assets or up to C.G

Sec.54ECAny AssesseTransfer a long term capital asset with in a period of 6 months from the date of transfer amount of C.G should have been invested in specified bond issued REC or NHAI.The above bond shall not transfer or covert or avail loan within a period of 3 year.

Maximum amount of investment shall not exceed 50 lakhs during the year.Amount of investment in the specified bonds or capital gains whichever in lower.

Sr. NoList of documents to be verified before buying a land / plot/ flat

1. Sale deed, title deed, mother deed, conveyance deed

2. RTC (record of rights, tenancy and crops) extracts

3. Katha certificates and extracts

4. Mutation registration extracts

5. Joint development agreement

6. POA (Power of attorney)

7. Sanctioned building plan

8. NOC from water, electricity, water and municipality department

9. Sale & construction agreement between developer/builder & first owner

10. Copy of possession letter from builder/ Developer

11. Any loans

12. Sale agreement with the seller

13. All paid tax receipts

14. Encumbrance certificate up to date for last 13 years

15. Demand letter from vendor before disbursement

16. NOC from society / Building

17. No due certificate

18. Approved Plan

19. Layout approval plan

20. Auction sale confirmation letter from local authority

21. Release Deed if any

22. Completion certificate

23. Occupancy certificate

24. Deed of Declaration

25. Latest electricity bill

Buying land in India for investment or for living is considered to be a major move financially and emotionally. Before you invest a huge chunk of your savings in a scheme that looks attractive or in a piece of land which looks its going to boom in the next 5 years, watch where you step.

There is also another reason, why I am writing this article One of my close friends recently got fleeced in a land deal and had to face heavy losses.Here is a lowdown on the few things you must know before you buy land in India hopefully it will help our readers to get a quick idea as to what all things that you need to take care of

Has the property cleared legal titles?Is your builder offering a pre launch scheme where the land has still not even been given a clear NA (non agricultural) title?You will need to make legal checks on the history of this land whether it still holds rights or interests of any third party that could pop up after you buy the land. Always make sure that you have had look at the ownership of land papers. It will save you a lot of head-ache at later stage.Have you understood your rights for delays?Have you invested in a real estate project 2 years back and havent seen any development in the property as promised? A lesson to be learnt from this is that you must understand your rights on delay of construction before you buy the property.Invest in a construction-linked scheme where a start date and an end date for construction is given. If possible,maintain a rapport with others buyers so that in cases of emergency, you have backing in terms of numbers to put pressure on the developer.Is your property being built on reserved land?You might think that developers would never do this. But dont be surprised if the government comes knocking on the door of your new residence asking you to evacuate because your house has been constructed on land which was only reserved for government projects like irrigation of a site of archeological research. Ensure that the proposed land is clear of such reservations.Have you checked the operating history of the developer?Are you rushing to buy land in a scheme because it has thrown up some grand visuals of Venetian villas being built on the banks of a river? Then stop! Cross check the name and the operating history of your chosen developer.How many projects have they successfully competed in the past? Talk to some buyers who may have purchased property with that developer. How much possession of the developers land has been taken successfully? Have they stuck to their promises of giving facilities in the plotted scheme?How many documents does your developer need to clear and have in hand?There are many documents that you will need to ensure that your developer has cleared in his files. From the 7/12 document which is the most critical document of Title and proof of rights to land revenue tax receipts, Title Deed, Stamp Duty document, Encumbrance certificate, Municipal Corporation approvals, Release Certificate from the bank, Allotment letter and the development agreement, the list is quite long.Make sure you have correct legal advice on the whole gamut of approved documents required.

Explanation of some real estate documents

Due DiligenceOnce the property has been identified, and a price agreed with the seller, the buyers lawyer will conduct a due diligence or a search of all the documents related to the property to ensure that there are no deficiencies with the property that will hinder the proposed sale. In certain geographies, prior to due diligence the buyer and seller may sign a letter of intent or memorandum of understanding, accompanied by earnest money or deposit.Title:Probably the first and most important thing the lawyer will check is the title of the seller with respect to the property. It is essential to know that if the seller does not have perfect title, he cannot transfer the same to the buyer.For example, if the seller is not listed as the owner of the property, he cannot sell it. Similarly, if the property is jointly owned by more than one person, each joint owner would be required to sign the agreement to sell and sale deed, unless any one of them is authorized to act on behalf of the others by way of power of attorney.A title search is taken at the office of the local sub-registrar. The buyer should ask for all title documents (and copies of the same) right from the first owner of the property or, in the case of property that is extremely old, title documents thirty years prior to the search. This process can take between 8 and 10 days. The lawyer should also ascertain the survey number, village and registration district of the property as these details will be required for registration.Encumbrances:The office of the local sub-registrar would also have to be searched to see if there are any encumbrances on the property, such as a mortgage, lien, or claim from a third party. Although mortgaging properties is not an exceptional practice, one needs to consider the implications of purchasing a mortgaged property very carefully.In case the seller defaults in paying his debt, the mortgagee usually a bank can attach the property and sell it to recover the debt, despite the fact that the mortgagor/seller no longer owns the property. Also, the mortgage deed might contain a stipulation that the property cannot be sold unless the mortgagee gives a no objection certificate and in the case of mortgaged property the buyer must insist that the seller clears the mortgage obtains a NOC from the bank. Alternatively, the buyer may contract with the seller to make payment directly to the bank and remove the encumbrance.Property Tax:The lawyer must also check tax receipts for the past three years to determine whether the seller has paid the requisite property tax to the housing society or, in the case of independent houses, to the municipal authority.Litigation:It is also essential to ensure that the property is not the subject-matter of any litigation, as cases pending before the courts can take several years, if not decades, to be finally decided.Probated Will:In case of property that the seller has inherited, the lawyer must check the will by way of which the property was acquired. Although Indian law does not require a will to be probated (i.e, authenticated by a court), this is preferable as a probate ensures legitimacy of the will and is valid against any claims thereafter made against the sellers right to inheritance of the property. Although challenging a probated will is not unheard of, it is extremely difficult for someone to do so successfully if the will is not fraudulent.Buyers rights:To examine all documents of title that the seller possesses or can produceTo be informed of any material defect in the property of which the seller is awareTo the execution of a proper conveyance upon payment of purchase priceTo possession of the property as per the agreement of saleA buyer must also release an advertisement in a newspaper stating his intention to buy the property from the seller, and for our sale properties TERRAFIRMA will assist with this. This is done so that any objections to the proposed sale are raised in advance and may be dealt with accordingly. The objections may bring to light certain hidden facts, such as an encumbrance, or title defect which might significantly impact a buyers decision to purchase the property. In case there is a defect in the title, the entire sale can fall through if not rectified.Once the buyers lawyer is satisfied that the sellers title is free from defects, he will issue a title certificate, which is a document stating that the seller has the necessary title to sell the buyer his property.Agreement to SellAfter the buyers lawyer has issued the title certificate, the sellers lawyers will draw up a document known as an agreement to sell (in certain geographies like Mumbai, a deposit may be required from the buyer prior to the title search and agreement to sell; the buyers lawyers will furnish the exact details). The agreement to sell will contain the terms and conditions of the sale, and while there is no standard format for the same, it usually contains the following vital information:Description/location of the propertyThe purchase price for the propertyThe amount of deposit payable by the buyer usually it would be in the range of 10% to 20% of the purchase price to be paid in advanceDate of closing the date on which the purchase price is to be fully paid to the seller and the sale deed executed and registered by himDate on which the buyer will be given possession of the propertyThe agreement to sell might also contain provisions to deal with breach by either party e.g. forfeiture of deposit in case of buyers default, or return of deposit along with interest in case of sellers default an arbitration clause or a clause specifying the court which would have jurisdiction in case of a dispute, and provisions for inspection or investigation of title, such as the time in which this is to be completed.The agreement to sell must be attested by the signatures of at least two witnesses and must be registered by the sellers lawyers.It is imperative that a buyer not sign any documents unless both he and his lawyer are satisfied with its contents.Sale DeedWhen the agreement to sell is duly registered and the purchase price (or a portion thereof, if so agreed upon), the sellers lawyer will draw up a document known as a sale deed. This is the document by which the buyer will acquire ownership of and title to the property.There are certain fees that are required to be paid with respect to the sale deed. Stamp duty, a levy imposed by the government on certain instruments, is payable on the property under the Stamp Act of the state in which the property is located (see box for the applicable stamp duty in various states). The stamp duty is payable either by printing the sale deed on stamp paper of the appropriate value or by franking of the sale deed for the value. In case the buyer has paid the stamp duty and the sale falls through, he would need to apply for a refund, which could take 4 to 6 months.Like the agreement to sell, the sale deed too is required to be attested by two witnesses and registered, and the PAN cards of the buyer and the seller will be required. Registration of the sale deed is carried out by lodging the original stamped agreement with the relevant registration office. Registering the sale deed is crucial as the title to the property does not pass to the buyer unless it is duly registered in accordance with the Registration Act.Please bear in mind that stamp duty and registration fees are two entirely separate costs, both of which are to be borne by the buyer unless otherwise agreed between the buyer and the seller.If the property purchased is in a housing society, the buyer would need to complete certain forms of the society once the property is registered in his name. Once the forms are submitted the society president will raise the issue in the next AGM and admit the buyer as a member. In certain cases, a NOC (no objection certificate) from the society may be required.GUIDELINES FOR NRI / PIO / FOREIGN NATIONALSPotential buyers who are not Indian citizens but are resident in India may still have the legal right to purchase property in India. The Foreign Exchange Management Act, 1999 (FEMA) regulates the purchase of properties by Non-Resident Indians (NRI), Persons of Indian Origin (PIO), and foreign citizens.The buyer must ensure that the land on which the purchase property is built is not agricultural land or plantation property, as these types of land can only be purchased by an agriculturist who is an Indian citizen.NRI and PIOThe general requirements to obtain a PIO card include holding an Indian passport at any time, ones parents, grandparents or great grandparents being born in India or permanent residents of India, or spouse being a citizen of India or PIO card holder. Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan may not hold PIO cards. For more information and a detailed list of requirements, please visit http://www.immigrationindia.nic.in/pio_card.htm.An Indian citizen resident outside India or a PIO does not require any special permission to buy immovable property in India.However, no payment of the purchase price can be made in foreign currency. The buyer make the purchase in rupees through funds received in India through normal banking channels, or funds maintained in any non-resident account under FEMA and RBI regulations.There are also no restrictions on the number of immovable properties an NRI or a PIO may purchase for either residential or commercial purposes.Foreign CitizensA foreign national resident outside India cannot buy immovable property in India.However, foreign nationals who are resident in India (and who are not citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan) can purchase immovable property in India without any special approval from the RBI. However such buyers should check with their lawyers before buying any property as they might require approvals from other authorities such as the State Government, etc.To be considered a resident of India under FEMA, a foreign national would have to satisfy two conditions: He/she must be residing in India for more than 182 days during the preceding financial year, and His/her continued presence in India in the current financial year must be for the purpose of taking up employment, carrying on business or vocation in India or for any other purpose that would indicate your intention to stay in India for an uncertain periodBoth conditions must necessarily be fulfilled for a foreign national to be considered a resident of India under FEMA.Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan who are resident in India can only purchase immovable property in India with the prior permission of the RBI, who will consider the request in consultation with the Government of India.For more information, please visithttp://www.rbi.org.inRepatriationAn NRI or PIO may repatriate the proceeds from the sale of immovable property in India on the following conditions:The property was purchased by the NRI/PIO in accordance with the provisions of FEMA in force at the time of the purchaseThe amount repatriated should not exceed the amount paid for the property if the property was acquired in foreign exchange remitted through normal banking channels or out of funds held in an FCNR (B) accountIn the following circumstances, the NRI/PIO may repatriate a maximum of USD one million per financial year:Out of the balances held in the NRO account if the property was purchased out of rupee sourcesIf the property was acquired by way of gift, the sale proceeds must be credited to an NRO account, and thereafter may be repatriatedIf the property was inherited from a person resident in India, it may be repatriated on production of documentary evidence proving inheritance, an undertaking by the NRI/PIO, and a certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct TaxesIn the case of residential property, repatriation of sale proceeds is restricted to not more than two such properties.A foreign national may repatriate sale proceeds even if the property was inherited from a person outside India. However, prior approval of the RBI must be obtained.A citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan and Iran must seek specific approval from the RBI for repatriation of sale proceeds.

History land acquisition history in india

The first land acquisition legislation in India was enacted by the British government in 1824. Called the Bengal Resolution I of 1824, the law applied to the whole of Bengal province subject to the presidency of Fort William. The law enabled the government to obtain, at a fair valuation, land or other immovable property required for roads, canals or other public purposes. In 1850, the British extended the regulation to Calcutta (now Kolkata), through another legislation, the Act I of 1850, with the object of confirming the title to lands in Calcutta for public purposes. It was also that time when the British were building railway lines across the country, and needed some form of legislation, which would enable them to acquire land for the same. The Act XLII of 1850 declared that Railways were public works and thus enabled the provisions of Resolution I of 1824 to be used for acquiring lands for the construction of railways. Likewise, similar Acts in Bombay (now Mumbai) in 1839, the Building Act XXVII and Act XX of 1852 in Madras (now Chennai) were passed to facilitate land acquisition in these presidencies (within the islands of Bombay and Colaba and the Presidency of Fort St. George). However, it was in 1857 that the British enacted legislation that applied to the rest of the provinces or presidencies and the whole of British India. Act VI of 1857 repealed all previous enactments relating to acquisition and its object as stated in its preamble, was to make better provision for the acquisition of land needed for public purposes within the territories in the possession and under the governance of The East India Company and for the determination of the amount for the compensation to be paid for the same. This act, owing to unsatisfactory settlement, incompetence and corruption was further amended in 1861 (Act II) and 1863 (Act XXII) and subsequently led to the enactment of Act X of 1870. The 1870 law, which for the first time, brought a mechanism for settlement (the reference to a civil court for compensation, if the collector couldnt settle by agreement), was eventually replaced by the Land Acquisition Act, 1894 (Act I of 1894). The 1894 law did not apply to princely states like Hyderabad, Mysore and Travencore, who enacted their own land acquisition legislation. After India gained independence in 1947, it adopted the Land Acquisition Act of 1894 by the Indian Independence (Adaptation of Central Acts and Ordinances) Order in 1948. Since 1947, land acquisition in India has been done through the British-era act. It was in 1998 that the rural development ministry initiated the actual process of amending the act. The Congress-led United Progressive Alliance (UPA) in its first term (2004-09) sought to amend the act in 2007 introduced a bill in parliament. It was referred to the standing committee on rural development, and subsequently, cleared by the group of ministers in December 2008, just ahead of its eventual passage. The 2007 amendment bill was passed in Lok Sabha as the Land Acquisition (Amendment) Act, 2009 in February 2009, and the UPA returned to power for a second term in May that year.However, with the dissolution of the 14th Lok Sabha soon after, the bill lapsed. The government did not have the required majority in the Rajya Sabha to pass the bill. The 2007 bill called for a mandatory social impact assessment (SIA) study in case of large-scale physical displacements in the process of land acquisition. The act ensured the eligibility of tribals, forest-dwellers and persons having tenancy rights under the relevant state laws. As per the bill, while acquiring the land, the government had to pay for loss or damages caused to the land and standing crops in the process of acquisition and additionally, the costs of resettlement and rehabilitation of affected persons or families. This cost or compensation would be determined by the intended use of the land and as per prevailing market prices. It also sought to establish the Land Acquisition Compensation Disputes Settlement Authority at both the state and central levels for the purpose of providing speedy disposal of disputes relating to land acquisition compensation. Besides, the bill also proposed that land acquired as per the act which is unused for a period of five years shall be returned to the appropriate government. After the UPA came back to power with a bigger mandate, it sought to reintroduce the bill in 2011 as the Land Acquisition Rehabilitation and Resettlement Bill, 2011 or LARR, 2011. The bill proposed that for a private project, land could be acquired only if 80% of the affected families agree to its acquisition. For a public-private partnership (PPP) project, 70% affected families must agree. Besides, it proposed compensation for the affected partiesfour times the market rate in rural areas and two times of the market rate in urban areas. It also sought to compensate artisans, traders and other affected parties through a one-time payment, even if they didnt own land in the area considered for acquisition. The bill was passed inAugust 2013 as The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 and came into effect on 1 January 2014. In May 2014, as the Bharatiya Janata Party-led National Democratic Alliance (NDA) swept to power, riding high on its development-driven agenda, it sought to bring about immediate reforms in land acquisition procedures. Without land acquisition, it argued, the government will find it difficult to execute its ambitious pet projects, including the Make in India programme, which seeks to revive and boost domestic manufacturing. Land acquisition is also central to the governments thrust in infrastructure development. To facilitate its economic agenda, it promulgated the land acquisition amendment ordinance in December 2014 with a view to introducing legislation in the Budget session of parliament. Under the proposed 2015 bill, there will be five categories which will be exempt from certain provisions of the previous act, including consent for acquisition. They are: national security and defence production; rural infrastructure including electrification; affordable housing for the poor; industrial corridors; and PPP (public private partnership) projects where the land continues to vest with the central government. These categories are also exempted from the SIA provisions, as provided for in the 2013 act. The 2013 act facilitated land acquisition by private companies, which the 2015 bill has changed to private entities. As per its definition, a private entity is an entity other than a government entity and includes a proprietorship, partnership, company, corporation, nonprofit organisation, or other entity under any other law. The 2015 version also removes restrictions on acquisition of land for private hospitals and private educational institutes.

PROCESS FLOW DIAGRAM OF LAND USE CONVERSION

Figure 2 adapted and modified: JNNURM RTP