Respite for the first timers

Are you looking to buy a house for the first time? Thanks to the Union Budget of 2013, you can heave a sigh of relief as new loans up to Rs.25 lakh will be eligible for an additional tax deduction of Rs.1 lakh for interest payments. This is their way of encouraging people to buy their first home ever. Good move, and definitely deserves a sigh of relief.

However, this is of course on for the financial year of 2013-14 as of now. So that means, a person taking a loan of up to Rs.25 lakh for his first home between April 1, 2013 and March 31, 2014, will be entitled to an additional deduction of interest of up to Rs.1 lakh. Apart from being beneficial to first time buyers, this move will also boost a number of industries like steel, cement, brick, wood and glass, besides giving jobs to thousands of construction workers. With this, the total deduction for interest payment for 2013-14 will be Rs.2.5 lakh. If the interest component is less than the deduction limit, the balance can be claimed in the next financial year.

With the advent of this benefit, taxpayers can continue to claim deductions up to Rs.1 lakh for repayment of home loan principal within the overall limit of Section 80C of the Income Tax Act. There are a few areas to look into though, as can be the case with any rule or law.

1. A deduction of up to Rs.1.5 lakh for interest payment (under Section 24B) is allowed if the house is ready and occupied by the taxpayer.

2. Any pre-construction interest is allowed to be deducted in five equal instalments within the Rs.1.5 lakh limit after the house is ready.

3. If the house has been let out, the taxpayer can claim the entire interest component as deduction from the rental income.

This move is definitely very encouraging for buyers on the lookout as well as opportunities in real estate, both of which will see a significant rise as per predictions of many.

Where there's a Bill, there's a way

The Real Estate Bill 2013 has been in the pipeline for quite a while and it's only recently that it was approved by the Union Cabinet and is now waiting to be passed by the Parliament. This Bill allows for the creation of a regulator in the real estate sector, for residential properties. Here's how it attempts to safeguard buyers' interests:

1. Property brokers must obtain a license.
2. Developers to submit authenticated copies of approvals and sanctions from the competent authorities while applying for registration.
3. No advertising, selling or money raising will be permitted before project approvals are in place.
4. If a developer flouts a provision of the Bill, he could be fined severely or jailed.
5. The provisions of this Bill will also apply to government agencies involved in housing projects.
6. Developers should maintain a separate bank account for each project in a scheduled bank to prevent diversion of funds from one project to another.
7. Compulsory registration of all real estate projects of more than 4000 sq.mts.

One of the best parts of all the documentation this Bill demands is that brokers, especially those who only deal in cash, will have to redo their methods, so to speak. The buyer's cost will be affected just by this.

With the good comes the bad. Here are some shortcomings of this Bill:

1. The Bill will be applicable only to new real estate projects. Those projects that have already been launched and sold will not come under its purview
2. While there are penalties for failing to deliver on time, there is no clarity on what happens if the delay is due to the failure of government agencies to give timely approvals.
3. Since Registration is required only for projects over 4000 sq. mts smaller developers will evade the Bill's scrutiny.
4. A developer will now launch a project only after he has received all the approvals, which is a timetaking process.

There are several complaints that developers will have but it benefits a real estate buyer and is quite the sigh of relief. But the sighs will have to wait as for it to be passed by the Parliament and adopted by all the States, there may still be time. Lots of time.