Provident Fund – An easy and cheap option for home finance

Provident Fund is a corpus on which every salaried individual relies upon to meet contingency and big expenditure. Although a majority of the salaried individual have a provident fund account, only a few are aware that they can withdraw from this fund, for various purposes connected with a house.


For purchase of a house or plot or for construction of a house

Under the Provident Fund scheme, an employee can withdraw money from his provident fund, after completion of the contribution of five years, for the purchase of plot and/or construction or purchase of a house. The loan can also be taken for the construction of a house on the plot of land owned by you or your wife, or jointly by both. The loan amount would depend on the purpose for which you are taking the loan. For purchasing a plot, the loan available shall be restricted to 24 months’ basic salary and dearness allowance (DA), subject to a maximum of the lower of either the balance in your provident fund account or the cost of the plot.

home on plot

In case you want to avail of the loan, to purchase or construct a house, availability shall be enhanced to 36 months of basic salary and DA, with the maximum again subject to lower of balance in the provident fund account or cost of the house. It is pertinent to note that the property cannot be purchased jointly with anybody else, except your spouse, for withdrawing from the provident fund.

In case you withdraw from your provident fund account, the construction should begin within six months and be completed within 12 months of the withdrawal. In case you intend to buy a ready house, the purchase also needs to be completed within six months. The withdrawals for purchase/construction can be made in one or more installments, depending on the circumstances.


For addition/improvement of the house owned by self and/or the spouse

You are also entitled to withdraw money from your provident fund account, for making additions or improvements to a residential house that is owned by you or your wife or jointly. This withdrawal can only be availed, after five years from completion of the house. It is not necessary that the house for which you want to carry out the improvements should be the same, on which you had availed the withdrawal facility. This withdrawal for improvement can be availed, even if you have not availed of the withdrawal facility for purchase or construction of the house. The amount that you are eligible to withdraw, for improvement or addition, is restricted to 12 months’ basic salary and DA, subject to lower of the balance relatable to the employee’s share of interest in your account or the cost of such improvement.


You can also avail of the withdrawal facility again, only after 10 years from the first withdrawal, subject to the same eligibility criteria, vis-à-vis the amount.

Advances for repayment of housing loan

The provident fund scheme allows you to avail of the withdrawal facility, for repayment of the outstanding balance in a home loan taken by you or your spouse for the above purposes. The advance amount cannot exceed 36 months of basic salary and DA. This withdrawal can only be made for loans, availed either by the members or by the spouse, from specified entities like governments and state government, registered co-operative society, state housing board, nationalized banks, public financial institutions, municipal corporation, or any development authority, for the purchase of a house.

home loan

So, when you are on the outlook for the options for financing a new house purchase, construction on plot or repair, renovation or alteration to existing home which is in your or spouse’s name, then, Provident Fund is a viable option which one can explore.


The pros and cons of buying a distressed property

The real estate sector in India got a fillip when the process of home loans became liberal and easy. This liberalisation has helped cherished dream to own a home became a reality for a common Indian. Now, as we all know that upon fulfilling certain parameters one is entitled to a home loan by Banks and Financial institutions. The applicant has though to go through a very strict scrutiny by loan giving institution but there are cases when the loanee defaults in servicing of the loan and when the banks or financial institutions take over the property for recovery of the loan then it is termed as distressed property.home_loans

Distressed properties are rare, as less than 5% of Indian borrowers default on their obligations, for periods long enough to warrant a bank auction. Property owners who have only a few cycles left to repay would prefer to restructure the loan rather than default on payment. The base price for the auction is determined by the loan amount outstanding – the further along the owner is in the loan term, the lower the base price.

Red Foreclosure For Sale Real Estate Sign in Front of House.

Information, regarding the auction of distressed properties, can be obtained from banks’ advertisements in leading local newspapers, the schedules/annexures in banks’ annual reports, and from property consultants with expertise in the location.

When a bank places a property for auction, one needs to read the bid document carefully. This document contains all the facts covering the legal title and responsibility for pending dues. Generally, the property is sold on an ‘as is where is’ basis and till the date of the auction, dues are cleared.


Buying through a bank auction

The bank will first release an advertisement, setting a date for the auction and invite bids. It will then collate the offers and finally decide whom to sell the property to. It can be a cumbersome process if the buyer requires a home loan too. Moreover, the bank has to conduct a due diligence search on the incoming buyer, draw up contracts to transfer the property and obtain a go-ahead from the owner.


The bank will also obtain an NOC from the society before the auction. The society will highlight any liabilities that the new owner will have to bear and the same will be mentioned in the bid document. Many societies and their members have first right of refusal, or its members can match the highest bid to buy the property.


Buying directly from the owner

In this case, the owner and the new buyer would agree to the commercial terms, exchange a token deposit and then complete the bank process before signing the agreement and taking possession. The entire process can take two to three months. The property’s price will be higher than in a bank auction, as the seller will try to recover his/her initial investment.



Buyers must aim for a win–win for the bank and the original owner, to minimize the scope for a legal challenge. They must understand the history of the property under discussion and also get any historical papers for title due diligence.



  • It is difficult to know of all the distressed assets available.
  • In an auction, one has no way of knowing what the highest bid will be, so there is no guarantee of securing the property.
  • The original owner may sue the bank, resulting in legal delays for the buyer.



  • Properties are priced lower than existing market rates.
  • Potential to secure a property in a premium location.
  • Generally, there is less need for legal due diligence, as the bank would have inspected the documents before giving a loan.


Like every deal going for a distressed property is an affair that has its own pros and cons. It is advisable to go through them before going through the deal.

Goods and Service Tax: The effects Real Estate will have

A big-ticket reform that will transform the entire gamut of Indian business scenario is finally taking shape. Goods and Service Tax bill or GST bill as it is popularly known as, after getting elder house’s absolute nod will soon see the day with the passage of the bill from Loksabha. Though it needs to be vetted by at least 15 state legislatures but owing to the consensus between almost all political parties of the country, it’s passage seems to be a matter of time.


The question now arises as to how implementing GST will benefit Real Estate Sector. A short synopsis given below will help understand the benefits to the Real Estate Sector from the implication of GST.

The Goods and Services Tax is expected to be implemented from April 1, 2017.The Goods and Services Tax (GST), is a comprehensive indirect tax on the sale, manufacture and consumption of different kinds of goods and services throughout India, with all other central and state taxes intended to be subsumed under it. This tax will have far-reaching implications, including on real estate.

Existing taxation norms

The real estate industry in India has witnessed major tax changes, in the last few years. However, these taxes are not uniform all over the country – different practices and regulations are followed in different states. It was the 46th amendment to the constitution that brought massive changes towards taxation in the real estate sector. Subsequently, special powers were given to the state governments, for implementing Value-Added Tax (VAT) on some specific kinds of transactions.

Vat & Ecxise

For land, property and other kinds of work contracts, the state government and the central government levy different kinds of taxes. The transactions are mainly categorized in three parts – value of services, value of goods and materials, and value of land. The state government on the goods portion applies VAT, while the value of services is taxed by the central government. However, other than stamp duty, there is no clear tax on the transactions regarding the value of land. This situation leads to confusion and can result in dual taxation. Compliance and implementation of such taxes are also difficult.

This has led to a situation, where for one real estate transaction, multiple taxes need to be paid. This has a negative effect on the industry.

The industry’s demand to bring GST on board is primarily to get a clear and transparent taxation rule for the real estate sector in India.


Impact of GST on Indian realty

The implementation of GST can prove to be a significant step in reforming indirect taxation in India. Chances of double taxation would be diminished, as some of the central and state government taxes will be amalgamated into one tax. This will ease the process of taxation considerably, making it easier to enforce and administer.In the current situation, a developer incurs various kinds of expenses during the construction phase of a project. Different kinds of taxes are involved with these expenses, such as VAT/CST, customs duties, service tax, excise duty, etc. A majority of these taxes are expenses that are included in the system. This is because they are not creditable to the developer or to the end-customer. These non-creditable expenses lead to tax inefficiency, which is not desirable.


One positive impact of the GST could be the doing away of restrictions on credit utilization. This will definitely help in strengthening the credit chain in the entire system. If builders can properly manage this aspect, they will see some profit.

The proposed GST structure should provide a progressive and streamlined approach. Presently, builders running projects in different states have to comply with state-specific VAT laws, as well as other kinds of service taxes. Bringing in GST will, therefore, not bring any additional compliance burden on real estate builders in the country.


Issues regarding GST, which affect real estate builders

Developers, on their part, have also been seeking certain clarifications, vis-à-vis GST. For example, the definition of a real estate developer varies from one state to another. The composition scheme varies according to state, in which the VAT rates range between 1% and 5%. In some states, there are differences between the terms ‘real estate contractors’ and ‘real estate developers’. These different meanings will have to be factored in while evaluating the GST implications.

There might be some confusion regarding GST implementations on residential property, as well. In the present scenario, there is no service tax applicable on renting immovable property, particularly for residential purposes. However, service tax and VAT is applicable on construction work. The question that arises is if the GST will offer differential tax for residential properties.

As of now, it does not look like completed residential projects will be affected by GST, as buyers into completed projects have already paid the statutory charges, such as stamp duty and registration charges on the transaction.

The segments to watch on the GST front are under-construction flats and rental flats, which are expected to come under its ambit. GST will apply to the materials that a developer procures for building a residential project. Hence it will have a direct impact on the overall cost of construction.

Moreover, a lot also depends on the final rate of GST. If it is more than the existing cumulative taxes, then, the overall cost of buying an under-construction flat will increase, along with the added cost of stamp duty and registration. Developers will also have to keep an eye on costing, as price competitiveness is very important in the current real estate market scenario.




Capital gains on sale of Property

Property in India is considered as the safest investment option after gold. The Property like gold and other valuables can be inherited or can be purchased. Property like gold is purchased with an intention that it will serve as a saviour during the lean phase of one’s life.


Income tax provisions for the sale of an inherited property and the accrued capital gains are different from a property that is obtained through other means, such as an outright purchase. There is considerable confusion over the taxes applicable on the sale of an inherited property. While many think that the money received on sale of an inherited house is fully tax exempt, others feel that it is fully taxable. In reality, there is no tax liability at the incidence of inheritance. However, any profits made on the sale of an inherited house, are taxable as capital gains.

Income Tax

Computation of capital gains

A capital gain may either be short term, or long term, depending on the period for which the asset was held. If the inherited house is held for more than 36 months, it is treated as a long-term asset. This period of 36 months includes not only the period for which you held the house, but also the period for which it was held by the previous owner/s who had paid for it.

Capital Gains

For a holding period of less than 36 months, the actual cost of acquisition and any cost of improvement are deducted and the balance amount is treated as short-term gains and taxed at the slab rate applicable to you. If the combined holding period exceeds 36 months, you get the right to deduct the cost of acquisition and the cost of improvement as enhanced by the cost inflation index multiplier. The cost inflation multiplier is calculated, based on the cost inflation index of the year of purchase and the year of sale.

The cost of acquisition will be the amount paid by any of the previous owners, towards the purchase of the house. For example, consider a scenario, where you inherited a house from your father and he had inherited it from his father. If your grandfather had purchased the house for Rs 50,000, your cost of acquisition for capital gains purposes shall be Rs 50,000. Moreover, in case the house was inherited before 1st April 1981, you may substitute the fair market value of the property as on 1st April 1981 for the ‘cost of acquisition’ and apply the cost inflation index multiplier on that value.

In case the asset is inherited by you after 1st April 1981, you will have to consider Rs 50,000 as the cost of acquisition. As per strict reading of the income tax provisions, you can claim the benefit of indexation with reference to the year in which you inherited the property only and not earlier. However, high courts in Mumbai, Delhi and Gujarat have taken the view that for inherited property, in case the asset is acquired after 1st April 1981, the tax payer can claim indexation benefits from the year in which the previous owner who had paid for it had acquired it.


In any case, even if the asset was purchased before 1st April 1981, you can substitute the market value as on 1st April 1981 for the ‘cost of acquisition and get the indexation benefits from 1st April 1981, even if you may have inherited it later on.

Exemption from long-term capital gains

For a long-term asset, you have two options to save taxes. You can either invest the capital gains on the purchase of one house within two years or construct one house within three years. Alternatively and/or additionally, you can invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual.