The Real Estate (Regulation and Development) Act, 2016 (RERA), intends to protect the interests of home buyers and enhance transparency in the real estate sector. We examine how it will affect various stakeholders – from home buyers and builders, to brokers – and the provisions and penalties prescribed under the act
Update on January 2, 2019:
The government has constituted a committee, to suggest recommendations to strengthen the Real Estate (Regulation and Development) Act (RERA) and to remove difficulties in its implementation, an official said, on December 31, 2018. The decision to form the committee, to be headed by union housing and urban affairs joint secretary Shiv Das Meena, comes months after the ministry organised four workshops where stakeholders, including home-buyers, had given suggestions for effective implementation of the Act.
As of now, 28 states and union territories have notified the rules under the real estate law. “The ministry has formed a committee under its joint secretary Shiv Das Meena. The panel will look into the suggestions received at the four workshops on RERA and then, submit its recommendations to the ministry. The committee will also consider whether there is a need for changes under removal of difficulties of the central law’s clause,” the official told PTI. If needed, the committee may suggest amendments to the RERA, he said, adding that the panel will hold its first meeting on January 3, 2019.
The Government of India enacted the Real Estate (Regulation and Development) Act 2016 on 26th March 2016 and all its provisions came into effect, from May 1, 2017.
Developers have been given until the end of July 2017, to register their projects under RERA. Likewise, real estate agents, who also fall under its ambit, are still in the process of registering themselves. Several states still need to notify the rules under the Act and most importantly for buyers, developers/promoters need to register their projects under RERA.
The Real Estate (Regulation and Development) Act, 2016 (RERA) is an Act passed by the Indian Parliament. The RERA seeks to protect the interests of home buyers and also boost investments in the real estate sector. The Rajya Sabha passed the RERA bill on March 10, 2016, followed by the Lok Sabha on March 15, 2016 and it came into force from May 1, 2016. 59 of its 92 sections were notified on May 1, 2016 and the remaining provisions came into force from May 1, 2017. Under the Act, the central and state governments, are required to notify their own rules under the Act, six months, on the basis of the model rules framed under the central Act.
For long, home buyers have complained that real estate transactions were lopsided and heavily in favour of the developers. RERA and the government’s model code, aim to create a more equitable and fair transaction between the seller and the buyer of properties, especially in the primary market. RERA, it is hoped, will make real estate purchase simpler, by bringing in better accountability and transparency, provided that states do not dilute the provisions and the spirit of the central act.
The RERA will give the Indian real estate industry its first regulator. The Real Estate Act makes it mandatory for each state and union territory, to form its own regulator and frame the rules that will govern the functioning of the regulator.
Some of the important compliances are:
The most positive aspect of this Act is that it provides a unified legal regime for the purchase of flats; apartments, etc., and seeks to standardise the practice across the country. Below are certain key highlights of the Act:
Establishment of the regulatory authority: The absence of a proper regulator (like the Securities Exchange Board of India for the capital markets) in the real estate sector, was long felt. The Act establishes Real Estate Regulatory Authority in each state and union territory. Its functions include protection of the interests of the stakeholders, accumulating data at a designated repository and creating a robust grievance redressal system. To prevent time lags, the authority has been mandated to dispose applications within a maximum period of 60 days; and the same may be extended only if a reason is recorded for the delay. Further, the Real Estate Appellate Authority (REAT) shall be the appropriate forum for appeals.
Compulsory registration: According to the central act, every real estate project (where the total area to be developed exceeds 500 sq mtrs or more than 8 apartments is proposed to be developed in any phase), must be registered with its respective state’s RERA. Existing projects where the completion certificate (CC) or occupancy certificate (OC) has not been issued, are also required to comply with the registration requirements under the Act. While applying for registration, promoters are required to provide detailed information on the project e.g. land status, details of the promoter, approvals, schedule of completion, etc. Only when registration is completed and other approvals (construction related) are in place, can the project be marketed.
Reserve account: One of the primary reasons for delay of projects was that funds collected from one project, would invariably be diverted to fund new, different projects. To prevent such a diversion, promoters are now required to park 70% of all project receivables into a separate reserve account. The proceeds of such account can only be used towards land and construction expenses and will be required to be certified by a professional.
Continual disclosures by promoters: After the implementation of th
Although a person can avail of multiple home loans, the tax benefits on the interest paid on the loan for a second house, are different from that available for the first house
People are generally under the impression that one can own any number of properties but one cannot take more than one home loan at a time. This is not true. As there is no restriction on the number of properties you can own, there is also no restriction on the number of houses for which you can take home loans and claim tax benefits. The amount of home loan that you can take, for all the properties taken together, shall depend on your earning and your ability to service the loan.
You can claim deduction for interest payable on a loan, taken for purchase, construction, repair, or renovation of any property under Section 24b. In case you own only one residential house property which is occupied by you, the maximum deduction that can be claimed on interest repayment on a loan for that property, is restricted to Rs 2 lakhs per annum. However, in case the money is borrowed after 1st April 1999 and construction of the property is not completed within a period of five years from the end of the financial year in which the money was borrowed, the deduction in respect of the interest claim shall be restricted to Rs 30,000 only.
See also: Long-term capital gains tax: Exemption on buying multiple houses
In case you have let out any property or properties owned by you, you can claim deduction for the entire interest paid, without any upper ceiling against the rent received in respect of each such property. However, in case you own more than one house property and more than one houses are occupied by you, then, you have to choose any one property as self-occupied and the other property/properties are treated as let-out for which a notional rental income, based on the rent the property is expected to fetch, is required to be offered for taxation. So, once any such property is treated as let-out, you can claim the tax benefits for full interest paid, for money borrowed in respect of any of the property that is treated as let-out.
This deduction on interest payment is available, for any residential or commercial property owned by you. It is also available, irrespective of whether the money is borrowed from a bank or housing company, or from friends or relatives, for the purpose of repairs, purchase construction, reconstruction, etc.
Any interest paid during the construction period can be amortised and can be claimed in five equal instalments, beginning from the year in which the construction is completed and possession of the house is taken.
However as per the amended law w.e.f. April, 1, 2017, the aggregate of loss under the head ‘Income from house property’, cannot be set off by more than Rs two lakhs against other income for a year. Any loss remaining unadjusted, can be carried forward and be set off against income from the same head, for eight subsequent years.
As per the provisions of Section 80C, you can claim up to Rs 1.5 lakhs for repayment of housing loan taken from specified institutions, including cost of registration and stamp duty of a residential house. Although you can take home loans for more than one property, the amount of deduction shall be restricted to Rs 1.5 lakhs. The overall amount of deduction, includes other items like provident fund contribution, life insurance premium, tuition fees, PPF contribution, NSC, ELSS, etc.
This deduction can be claimed only after you have taken possession of the property. If you have started repaying the principal of a home loan before taking possession, this benefit is not available to you. Please note that repayments of loan taken from your friends and relatives, are not eligible for this deduction.
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