1. Real Estate Investors
Encyclopedia

2. Trainings by Vidya Bhagwat
4.1 Who can Invest in Real Estate
1. Any person who is Indian Citizen residing in India can
invest/acquire/transfer real estate without any
permission from the Reserve Bank of India.
2. All persons, whether resident in India or outside India,
who are citizens of Pakistan, Bangladesh, Sri Lanka,
Afghanis-tan, China, Iran, Nepal or Bhutan require prior
permission of the Reserve Bank for acquiring or
transferring any immovable property in India.
3. A person resident outside India, who has been permitted
by the Reserve Bank to establish a branch or office or
place of business in India (excluding a Liaison Office) in
order to acquire immovable property in India which is
necessary for or incidental to the activity.

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Prohibition on direct investment outside India
No Indian party shall make any direct investment in a foreign
entity engaged in real estate business or banking business
except after taking prior permission from RBI.
Real estate business‘ means buying and selling of real estate
or trading in Transferable Development Rights (TDRs) but does
not include development of townships, construction of
residential/ commercial premises, roads or bridges.

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4.2 Acquisition and Transfer of Immovable
Property in India by a Person Resident
Outside India
Investing in immovable properties in India is not a Herculean
task for the NRIs anymore. We have come a long way from the
days of FERA (Foreign Exchange Regulation Act) regime, when
buying or selling of immovable property was governed by the
citizenship of a person. According to an estimate, about 25
million
NRIs are looking at home country for potential investment
opportunities in real estate. The FDI under automatic route in
real estate development has also augmented the confidence of
overseas Indians to forge strategic alliances with global realty
giants for testing select markets across the country. Before we go
into the details of the law governing NRI investment in real
estate, let us first understand the basic definitions.

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4.3 Income Tax Aspects for an Investor
There are many provisions under Income Tax Act, 1961 under
which income from real estates is taxable subject to certain
exemptions and deductions. Income from real estate can be by
way of rent or by way of gain on its transfer.
Rent from building and land appurtenant thereto is chargeable
to income tax under the head income from house property.
Rent from land is chargeable under the head income from
other sources.
Any gain on transfer of any land or building is chargeable
under the head income from business and profession if it is held as
stock-in-trade; otherwise it is chargeable under the head Capital
Gains.

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Based on its use, a real estate can be categorized as under:
 Self-occupied properties for residential use.
 Self-occupied properties for commercial use.
 Properties used for agriculture.
 Let out properties.
 Vacant properties.
 Properties kept as stock in trade.
 Properties kept as investment.

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4.4 Tax Planning for Real Estate
Investment
One of the most important rules for tax planning while buying
a house property in India is that one should own only one
house or a part thereof in the form of a flat or apartment
particularly when it is meant to be used for self-occupation or
dwelling by self or any member of his family.
If any one is the owner of two or more self-occupied houses or flats,
only one self-occupied house would be exempt from
income tax and the extra self-occupied house(s) would be liable to tax
in respect of deemed rental income.

8. Trainings by Vidya Bhagwat
House Property for Renting Purposes
If one is interested in acquiring a house for the purpose of
letting out, then a distinction is to be made between
commercial property and residential property.
Wealth-tax exemption
There is an exemption not only for the commercial property
used for one‘s own business or profession but also for all
commercial complexes and commercial buildings from the levy
of wealth-tax. Besides, if any individual is the owner of only one
house property or a plot of land up to 500 sq. m, he would be
granted complete exemption in respect of the same from
wealth-tax under the provisions of section 5 thereof. Besides,
all residential properties let out for a minimum of 300 days in a
year would be completely exempted from wealth-tax.

9. Trainings by Vidya Bhagwat
Saving tax with the use of Gift Tax norms
Until the gift tax was introduced, taxpayers had devised an
easiest way to evade or reduce estate duty, income tax and
wealth tax by gifting money, as also movable and immovable
assets within the family. It was at this juncture that the
government decided to introduce gift tax. Gift Tax was
introduced in 1958. The objective was to curb instances of tax
evasion by taxing gifts in the hands of the donor.
Methods to reduce tax
You can reduce a great amount of tax by gifting assets
within the family. Subject to the payment of stamp duty and
registration charges, you can now transfer property in the form
of houses, flats or plots to children above the age of 18, or even
minors on the threshold of 18, without attracting gift tax.

10. Trainings by Vidya Bhagwat
4.5 Service Tax on Investors
Investors are persons who put their money in real estate for a
period of time. They do not render any service and hence, are
not liable to service tax. However, a service provider collects
service tax from the investor when he uses the services.
Some Important Points about Service Tax
Service tax is levied on provision of service. Six conditions have
to be fulfilled for levy of service tax, viz.
1. a service should have been rendered. There is no service
tax where only goods are sold.
2. there should be a service provider.

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Wealth Tax Planning
Under the Wealth Tax Act, wealth tax is charged for every
assessment year in respect of the net wealth on corresponding
valuation date for every individual, HUF and company. Wealth
tax is charged at the rate of one percent of the amount by which
the net wealth exceeds Rs 15 lakh. Net wealth includes assets
owned by the assesses.

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Properties owned by an assesses considered for
computation of wealth tax:
1. Any building or land appurtenant to it: This includes
any type of house. The house may be used for
residential or commercial purposes, for the purpose of
maintaining a guest house or any other purpose. It also
includes a farmhouse situated within 25 km from the
local limits of any municipality.
2. Urban land: This means land situated in any area which is
comprised within the jurisdiction of a municipality or a
cantonment board and which has a population of more
than 10,000 according to the last preceding census. It also
includes land situated in any area within a distance of
eight kilometres from the local limits of any municipality
or cantonment board.

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3. It is to be noted that all residential houses and properties
are not included for the purpose of computation of wealth
tax. Some are exempt from wealth tax. These include:
4 . One house or part of a house or a plot of land belonging
to an individual or a Hindu Undivided Family. The
house may be self-occupied or let out. In case the house
is owned by more than one person, exemption is
available to each co-owners of the house.

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Objective of self-assessment of property tax
There are two systems in assessment and recovery of taxes.
1. Assessment of tax by the officer.
2. Self-assessment system.
Under the former there was huge discretion vested in the
assessment officer which made the system arbitrary and often
allegation of corruptions were made. Under the later the
taxpayer assesses his own property tax based on definite rules.
Obviously Self Assessment Scheme is superior to the
assessment by an officer.

15. Trainings by Vidya Bhagwat
How is property tax calculated?
The tax on land and building is commonly called property tax.
The property tax base is classified into two groups.
1. Annual rental value of the property.
2. Property tax based on estimated capital value of land
and buildings.
For every property there lies a capital value. If the property is
let, there lies a rental value. Each property is not let. It is difficult
to decide annual rent for the self-occupied houses. There is no
annual rent in hotels, but the rooms are let on daily rent.

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4.8 Real Estate Mutual Funds
A NEW WAY OF INVESTING IN REAL ESTATE
REMF in India
Owning a home is an ambition common to most of us. Most of
us
buy a home to live in it. But there are a few who buy real estate
as
an investment. This was the state of affairs till recently.
However,
with the introduction of Real Estate Mutual Funds into Indian
markets, things have become to change. Now investing in real
estate is not the hobby of just wealthy businessmen. Ordinary
real estate funds.

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The following are the few advantages of investing in a real
estate mutual fund are:
1. Professional management: Each Real Estate Fund has in
place a well qualified and experienced team to safeguard
the interests of the investors.
2. Diversification: Investors can have variety of investment
options in their portfolio thereby, equipping themselves
better for future market downturns.
3. Convenient administration: Since their investment is in the
safe hands of professionals, they can save themselves from
the headache of taking care of their investment themselves.

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4.9 Precautions to be Taken in
Real Estate Transactions
Home is one of your most prized possessions. It is important to
be prudent and discreet in each and every step of buying a
house, right from choosing the agent to closing the deal. Here is
a list of questions you should check on different stages.

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4.10 All About Home Loans
The sky rocketing real estate prices has not put a dampener on
people‘s intentions to invest in it. 2005 was a good year for the
home loan industry and reports suggest that there has been a 30%
growth rate in comparison to 2004 in home loan disburse- mends.
Housing finance companies (HFCs) have made merry on account
of such sporadic growth. HFCs are also slowly seen to be moving
beyond the realm of offering pure‘ home loans. They are not just
restricting themselves to home loans only but are now venturing
into offering property related loans. The year 2006 has been
seeing the HFCs moving towards becoming a one-stop shop for
property and home loan seekers. The loan seeker will look at the
HFC as a very convenient destination to meet all their property
and home loan requirements.

20. Trainings by Vidya Bhagwat
4.11 Know All About Mortgage
Mortgage is a transfer of an interest in a specific immovable
property for the purpose of securing the payment of money
advanced or to be advanced by way of loan, an existing or future
debt or the performance of an agreement, which may give rise
to a pecuniary liability.
The person borrowing and transferring his interest in an
immovable property to the lender is the mortgagor. The lender
is the mortgagee.

21. Trainings by Vidya Bhagwat
4.12 Accounting for Investors
Property held for investment includes
property that produces interest, dividends, annuities, or
royalties not derived in the ordinary course of a trade or
business.
property that produces gain or loss (not derived in the
ordinary course of a trade or business) from the sale or
trade of property producing these types of income or held
for investment .
an interest in land or buildings that are not intended to
be occupied substantially for use by, or in the operations
of, the investing enterprise .
Accounting standard 13 would be applicable in accounting for
investments.

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Accounting for Investments
The following is the text of Accounting Standard (AS) 13,
Accounting for Investments‘, issued by the Council of the
Institute of Chartered Accountants of India.
Introduction
1. This Statement deals with accounting for investments in
the financial statements of enterprises and related
disclosure requirements.
2. This Statement does not deal with:
a) the bases for recognition of interest, dividends and
rentals earned on investments which are covered by
Accounting Standard 9 on Revenue Recognition.

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b) operating or finance leases;
c) investments of retirement benefit plans and life
insurance enterprises; and
d) mutual funds and/or the related asset management
companies, banks and public financial institutions
formed under a Central or State Government Act or
so declared under the Companies Act, 1956.
Definition
• “Investments are assets held by an enterprise for
• earning income by way of dividends, interest, and rentals,
• for capital appreciation, or for other benefits to the
• investing enterprise. Assets held as stock-in-trade are not
• Investments”.

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Classification of investments
1.An enterprise should disclose current investments and long
term investments distinctly in its financial statements.
2. Further classification of current and long-term
investments should be as specified in the statute
governing the enterprise. In the absence of a statutory
requirement, such further classification should disclose,
where applicable, investments in:
a) Government or Trust securities
b) Shares, debentures or bonds
c) Investment properties
d) Others—specifying nature.

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