1. Real Estate Brokerage Services
Encyclopedia.

2. Trainings by Vidya Bhagwat
Real Brokerage Services Encyclopedia.
One of the most complex and significant financial events in
peoples‟ lives is the purchase or sale of a home or investment
property. Because of this complexity and significance, people
typically seek the help of real estate brokers and sales agents
when buying or selling real estate.

3. Trainings by Vidya Bhagwat
Besides making sales, agents must have properties to sell.
Consequently, they spend a significant amount of time
obtaining listings—agreements by owners to place properties
for sale with the firm. When listing a property for sale, agents
and brokers compare the listed property with similar properties
that recently sold, in order to determine a competitive market
price for the property. Once the property is sold, both the agent
who sold it and the agent who obtained the listing receive a
portion of the commission.

4. Trainings by Vidya Bhagwat
Personality Traits and Qualification Required to
become an Agent
Any one can become a broker. It is easy for any one to enter the
field as there are no specific qualifications needed for becoming
a broker. This aspect makes it a highly competitive field.
Personality traits are equally as important as one's academic
background. Brokers look for applicants who possess a pleasant
personality, are honest, and present a neat appearance.
Maturity, good judgment, trustworthiness, and enthusiasm for
the job are required in order to encourage prospective
customers in this highly competitive field. Agents should be
well organized, be detail oriented, and have a good memory for
names, faces, and business particulars.

5. Trainings by Vidya Bhagwat
An Agent’s Income
Commissions on sales are the main source of earnings of real
estate agents and brokers. The rate of commission varies
according to whatever the agent and broker agree on, the type
of property, and its value. Commissions may be divided among
several agents and brokers. When the property is sold, the
broker or agent who obtained the listing usually shares the
commission with the broker or agent who made the sale and
with the firm that employs each of them.
Let us see how much an agent is actually paid. The standard
practice, or an unwritten rule, is 2% of the entire transaction
amount. However, larger deals are more likely to be settled at
less than 2%. Unfortunately, there is no definition of what
constitutes a „large‟ deal.

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Contract between a Broker and a Client
Client should be asked to discuss and sign a „contract‟ with the
broker. This contract includes the terms of sale for the property,
(such as the asking price), brokerage arrangements (such as what
the broker will do for the client and how much will be paid to the
broker), and the expiration date of the contract. It should be
made
sure that the services and terms that are important are written
into the contract. It should necessarily contain a clause that if a
property is introduced by a broker to the client, even if the buyer
and seller get in a direct deal afterwards, will fetch commission
to
the broker. This will safeguard the interests of the brokers‟ in
case
either of the parties wants to by-pass the broker later on.

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3.2 Service Tax on Real Estate
Agent Services
Section 65 (105)(v) of the Finance Act, 1994 includes the
services provided or to be provided by a real estate agent in
relation to real estate in the ambit of taxable services. These
services are taxable from October 16, 1998. This section
discusses these taxable services in relation to their scope and
taxability. The general aspects of service tax discussed in a
separate section of this book are applicable.
First let us find out who is a real estate agent and real estate
consultant and what conditions they need to fulfill to be taxed
under the services ambit.

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Definition of real estate:-
Real estate can be defined to mean land with anything
permanently affixed to land. According to the Compact Oxford
Dictionary, real estate‟ means real property and land”.
Procedural Requirements
Registration requirements :-
A real estate agent liable to pay service tax is required to
obtain registration in Form ST-1 (form is attached below)
within 30 days of the date of commencement of such service.
A real estate agent whose aggregate value of taxable service
in a financial year exceeds rupees four lakhs is required to
obtain registration in Form ST-1 prescribed within 30 days
from the date on which aggregate value of taxable services in
the financial year exceeds Rs 4 lakh.

9. Trainings by Vidya Bhagwat
3.3 Real Estate Agent Agreements
• An Agent's agreements can be for the following reasons:
1. When a prospective buyer approaches an agent with an
intention of purchasing a property (Please check
“agreement between a broker and a prospective purchaser”
for the draft agreement).
2. When seller or owner of a property approaches the broker to
sell his property (Please check “agreement for appointment of
a broker sell a house” for the draft agreement).
3. When the builder of an apartment approaches a broker for
selling the flats that are being constructed (Please check
“agreement between a builder and a broker for selling the
flats to be constructed” for the draft agreement).

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• Agreement for Appointment of a Broker for Selling a House
THIS AGREEMENT made at ______ on this ______ day of ______
2000 between A S/o. B resident of ______ hereinafter called the
owner‟ (which expression shall, unless it be repugnant to the
context or meaning thereof, be deemed to mean and include his
heirs, legal representatives, executors and administrators) of
the ONE PART and C S/o D resident of ______ hereinafter
called „the broker‟ (which expression shall, unless it be
repugnant to the context or meaning thereof, be deemed to
mean and include his heirs, legal representatives, executors
and administrators) of the OTHER PART.

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• Agreement between Builder and a Broker
For Selling the Flats to be Constructed
THIS AGREEMENT made at ______ on this ______ day of ______
2000, between ABC Construction Co. Ltd., a company
incorporated under the Companies Act, 1956 and having its
registered office at ______ hereinafter called „the Builder‟ (which
expression shall, unless it be repugnant to the context or meaning
thereof, be deemed to mean and include its successors and
assigns) of the ONE PART; and Shri XYZ son of Late Shari ______
resident of ______ hereinafter called „the Broker‟ (which
expression shall, unless it be repugnant to the context or
meaning thereof, be deemed to mean and include his heirs,
legal representatives, executors and administrators) of the
OTHER PART

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• NOW THIS AGREEMENT WITNESSES AS FOLLOWS:
1. The builder appoints the broker for selling the flats being
constructed by him, more particularly described in the
Schedule hereunder written at the price and on the terms
and conditions laid down in Annexure 1 to this agreement
2. The broker will be entitled to the commission at the rate of 5
percent on the cost of the flats booked by him.
3. The builder hereby represents and warrants that he is
having clear and marketable title to the flats, free from
any encumbrance, charge, lien, mortgage or attachment.
The builder also represents and warrants that the
material used in the flats is of best quality.

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3.4 Accounting for Brokerage
• Brokerage commissions
In consideration of the brokerage successfully finding a
satisfactory buyer for the property, a broker anticipates receiving
a fee for the services the brokerage has provided. Usually, the
payment of a commission to the brokerage is contingent upon
finding a satisfactory buyer for the real estate for sale, the
successful negotiation of a purchase contract between a
satisfactory buyer and seller, or the settlement of the transaction
and the exchange of money between buyer and seller.
Commissions are usually negotiable between seller and
broker. The commission could also be paid as flat fee or some
combination of flat fee and percentage, particularly in the case
of lower-priced properties.

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Accounting method
When an agent does earn a commission, it often comes several
months after he has expended his time and money with no
guarantee of closing the sale. Realtors drill a lot of dry wells.
The brokers can account for the commission and other charges
using Accounting Standard 9—Revenue Recognition which states
In a transaction involving the rendering of services, performance
should be measured either under the completed
service contract method or under the proportionate
completion method, whichever relates the revenue to the
work accomplished. Such performance should be regarded as
being achieved when no significant uncertainty exists
regarding the amount of the consideration that will be
derived from rendering the service.

15. Trainings by Vidya Bhagwat
Under the Income Tax Act, the following are the three main
modes of collecting taxes:
1. Payment by deduction of tax at source.
2. Direct payment of tax:
(a) Advance payment of tax,
(b) Payment as a result of self-assessment under Section 140A,
(c) Payment as a result of regular assessment under
Section 143 or Section 144,
(d) Payment in any other special manner.
3. Collection of Income Tax.
Payment by deduction of tax at source or by advance payment
of tax are mentioned under Section 190. The levy of tax by direct
payment is provided by Section 191 only when the tax is not
deductible at source and where the tax has not in fact been
deducted at source in accordance with the provisions of the Act.
3.5 TDS on Brokerage

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TDS on Commission or Brokerage—New Section 194H
The Finance Act, 2001 inserted a new Section 194H from 1 June
2001. Under this section, the person responsible (not being an
individual or a HUF) for paying any income by way of commission
or brokerage for services rendered (not being professional
services)
or any services in the course of buying or selling of goods or in
relation to any transaction relating to any asset, valuable article
or thing (not being securities), shall deduct income-tax thereon
at
the rate of ten pen cent. However, no such deduction will be
made
where the amount of payment or the aggregate amount of
payments, in a financial year, does not exceed two thousand five
hundred rupees.

17. Trainings by Vidya Bhagwat
The Government's efforts to improve tax collections through
tax deduction at source (TDS) are increasing by the day, and
the scope for TDS expanding by the year. There's good reason
for that: TDS is the best medium of collecting tax without much
of a hassle, since the responsibility to deduct tax is not on the
government, but on citizen-payers. What's more, the
government doesn't even have to pay any remuneration to
these „involuntary volunteers‟ who deduct tax at source. It is,
therefore, not surprising that the tax department accords a lot
of importance to TDS as a source of generating revenue and to
administering the TDS provisions more vigorously.

18. Trainings by Vidya Bhagwat
TDS provisions
The provisions under which specified individuals and HUFs are
liable to deduct tax at source are:
Section 194H. For commission or brokerage (apart from
brokerage on securities) in excess of Rs 2,500 per person per
year at 5.25 per cent.
The rates that have been specified are the prescribed rates of
income tax for TDS and include surcharge at the rate of 5 per
cent. In addition, the specified individuals and HUFs are
obligated to deduct tax under Section 192 in respect of salaries
paid to employees and payments to Non-residents under
Section 195. Importantly, the specified individuals and HUFs
are liable in the case of payments to sub-contractors only where
they are contractors themselves.

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TDS Obligations
TAN number. Every person who is liable to deduct tax at
source (educators) will have to get a TAN Number by making
an application using Form 49B within the prescribed time,
failing which there is a penalty.
Tax deduction: The detector has to deduct tax at source in
accordance with the specified provisions at the prescribed rates
at the time of credit of the sums of money liable for deduction
or at the time of payment of these sums, whichever is earlier.
Tax payment: The detector has to pay the tax that has been
deducted during a month by the 7th of the following month.
Failure to pay TDS by the due date will attract interest at 1.25
per cent per month for the period of delay.

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Forms of TDS
With the simplification reforms in TDS Returns, there is only
one form i.e., Form No. 26Q that needs to be submitted
quarterly for all the incomes be it, interest income, commission,
rental income or technical fees or payments to sub-contractors.
Taxpayer’s privilege
A person whose income/receipts are subject to TDS can apply to
the TDS Officer and get a certificate for lower deduction of tax
at source in case of salaries, interest on securities, dividend,
interest other than „interest on securities‟, insurance
commission, commission or brokerage, rent, income from units,
payment of compensation on acquisition of a capital asset, and
payments to non-residents. The application has to be made in
the prescribed form in response to which the „Certificate of
lower TDS‟ will be issued by the TDS Officer.

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