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Tips to Consider Before Drafting a Rental Agreement

Tips to Consider Before Drafting a Rental Agreement

What is a Rental Agreement?

It’s a legal contract of the rental between a landlord and a tenant. It states the guidelines for temporary possession of the property. This agreement differs from a lease, which is for a fixed term.

This contract plays a key role in settling down the conflicts between the tenant and the landlord. Sometimes, their relationship turns bitter due to complaints and misunderstandings. This agreement becomes crucial in resolving the matter.

Who should draft this rent agreement?

This agreement can be drafted by either the tenant or the owner of the property. In the case of NRIs, the property management company will be responsible for it.

It requires registration from the court or sub-registrar office. However, it may be notarized.

There are certain things that should be taken into account before renting out a property or drafting a rental agreement. Below are a few requirements for it.

Requirements for Drafting

To draft the rental agreement, you need to follow these steps:

  • Openly talk & discuss important matters like rent, security deposit, maintenance charges, etc.
  • Roughly draft with details like names of both parties involved in the agreement and address of the property.
  • Mention important clauses in the document.
  • Purchase a stamp paper of recommended value. Print what you have drafted on the stamp paper.
  • Get the paper signed by both tenant and landlord in the presence of two witnesses.
  • Visit the local sub-registrar office to get it registered.
  • In case of NRIs, a Power of Attorney in the name of the NRI property management agent or company will be required.

However, the cost drafting can be equally shared between the property manager and the tenant. The metropolitan (like Delhi) citizens have to get it legally registered to avoid a penalty of INR 5000. Or, the landlord can be imprisoned for three months because it would be a violation of the Delhi Rental Act Control.

How does an ideal rental agreement look like?

The ideal rental agreement should have a list of clauses that avoid any type of disputes or conflicts. For this reason, it should not miss out on a few key points, which are here for your concern:

  • The ownership agreement should be properly documented, and a copy of the similar one should be attached during the registration of the rental property.
  • There should have a clear mention of the contract period of the rental property. The notarization can be sufficient if the period of the agreement is less than a year. In case it exceeds, the registration from the sub-registrar office is a must.
  • Both parties should agree on the drafted terms and conditions that apply to both the tenant and the landlord.
  • All facilities, utilities, and appliances should be listed out in the agreement, which is likely to e offered to the tenant.
  • Do mention the provision of the repair and maintenance of utilities. This agreement should clearly read out the state of responsibility of payment for repair and maintenance.
  • This paper should state a crystal clear amount of rent and deposit. In addition, there should be scenarios wherein the landlord can terminate the contract and withhold the security deposit.
  • There should be a clear mention of restrictions that the landlord may put on the tenant. It could be anyone related to the choices of food and the guests of the opposite gender coming to the property.
  • The rent agreement should clearly read the purpose of the rented property. If it’s a commercial building, it cannot be used for a purpose other than any commercial purpose. There should be a written approval of the owner if one is using it for some other purpose.
  • Furthermore, this contract should be renewed at the end of every 11th month. There should be a track record of the security deposit and refunds if the agreement lapses.

Types of Rental Agreement

  • Rental Agreement

It is a commonly used document when a landlord agrees to accommodate his property to a tenant on rent. The purpose is only renting a residential property. This document is essential to form a favourable environment with the assurance of security from the lawsuit.

The tenant has to pay out a security deposit, which is refundable in most cases. Apart from that, there should be a monthly rent to be paid to the owner. This agreement ends in 11 months and should be renewed at the end of this tenure.

  • Lease Agreement

This agreement is crucial when a party accommodates the property for a particular number of years. The period of the agreement should not be less than a year. In this case, the monthly rent or security deposit is not required.

It is simply because the lump sum amount is paid to the owner. The owner parks this amount in the bank and earns interest on it. As the tenant vacates the property, the least amount is released to his account.

  • Commercial Agreement

The commercial agreement is drafted for accommodating property to carry out commercial purposes. The tenant is not allowed to rent it out to another party. In this case, also, the security deposit is a must, which should be paid before renting the property. Besides, the monthly rent should be paid in the account of the owner.

In the case of the lease agreement for the commercial space, it is a must to pay the lease amount before renting the property. As the lease expires, the tenant may receive the lease amount without any interest.

Swamitva Yojana Verifies Land Ownership In India

Swamitva Yojana Verifies Land Ownership In India

Swamitva Yojana is to generate ownership documents of a land in villages so that people can be empowered with the grant of these officially attested documents issued by the Indian government.

Swamitva Yojana or ownership scheme is a new launch by the Prime Minister of India-Narendra Modi. This is a great relief for those who do not have the documents officially, confirming the ownership of the land in villages including those who temporarily live abroad, as NRIs or PIOs. The whole mapping will be done with the help of the modern drone technology.

There are people who have their property in the rural regions, but no mapping till the date has kept millions of acres of land unregistered in India. As people with attested documents, as birth certificate can apply for passport or visa, the verified land documents will help them to get loan on property for earning bread & butter. So, this announcement on the Panchayati Raj Diwas is seemed as a revolution.

Here are a few highlights of this scheme:

  • This scheme is introduced to scale from unregistered property to registered residential property in the rural areas, as the person who did not measured and attested land ownership documents due to no such facility till the date can now get it done using modern technology.
  • The Panchayati Raj ministry of the Union government has piloted it to launch on April 24, 2020.
  • This was compulsory to introduce as the villages have several acres of lands with no mapping & no ownership documents. There are many pieces of land owned by residents and non-residents in the villages that have not been measured for attestation of documents regarding the same.
  • This scheme is aimed at removing disparity in the ownership of land I the villages. The government is going to settle property rights in the rural hinterlands, which will help in empowerment later.
  • The drone technology will do the whole measurement of the residential land to create a non-disputable record.
  • The Central Panchayati Raj Ministry, Survey of India, Panchayati Raj Department and Revenue departments of various states will closely work to enforce it as per scheme.
  • The drones will sketch a blueprint of every property falling within the geographical boundaries of a village and demarcate them corresponding to the revenue area.
  • The state will accurately measure the property via drone-mapping and distribute the property card. The card will recognize the land owner and hence, the revenue record department will easily carry out its processing.
  • The legal registration of the property rights through an official document will assist land owners to get finance using their property as collateral.
  • The Panchayat will maintain those records so that the associated taxes from the owners could be collected. The collected fund will be used for the building of rural infrastructure & facilities.
  • The property registration will create an organized structure, including those having title disputes, to appreciate the market value of the properties.
  • The accurate records will regulate the collection of taxes, infrastructural development, issuance of permits and thwarting attempts at property confiscating.

This is a praiseworthy step to give the owners of the property a sigh of relief. There several land mafia and corrupt people who confiscate the property of non-residents for being not there with the attested documents. This announcement has provided a golden opportunity to all for getting back to the root after retirement. Such people can live a happy life in the clean idyllic environment of the village.

NRI Property Selling-Based Tax Exemptions in India

NRI Property Selling-Based Tax Exemptions in India

The Indian diaspora in the foreign might have a score of queries regarding the property selling and their tax implications. Many of them often fail to access accurate information over it.

This blog covers all those pain points and the areas capital gains & exemptions on them after selling the property.

Let’s begin with a very common scenario wherein an Indian is shifted to the U.S.. Although he is living there, he has been managing property in India. While managing that property, he has been generating rental income for a fair four years. In legal terms, it is a long term capital gain for him.

Go through the difference between long term and short term capital gains.

  • Long term capital gains- These are the gains that one can get through rental income upon owning the property for the minimum of 2 or more years.
  • Short term capital gains-These are similar to long term gain, but the ownership of the property will be less than two years old. The rental income generated during that tenure will be termed as a short term capital gain.

NRIs deduct TDS on the sale of property:

The tax will be deducted according to long or short term capital gains. The cases of inherited property would not be barred from the TDS.

The long term capital gain shall be taxed 20%, whereas the percentage for short term capital gain shall be 30% in India. When the NRI sells that property, the buyer shall have to deduct the TDS.

In the meantime, the non-resident can claim for exemption under Section 54 and Section 54EC. But, this exemption is valid for long term capital gains sourced from the sale of the property in India.

Tips to win exemptions from long term capital gains to save tax on the sale of NRI property:

There are certain terms and conditions drafted regarding the sale proceeds of the property and exemptions. Upon satisfying these conditions, you can win them:

  • Invest in the property within one year before the date of transfer or, wait for years after that
  • Construct a house within three years after the date of transfer
  • The constructed property would remain unsold within three years of purchase
  • The new purchased or constructed property shall be located in India
  • You do have more than one residential property on the date of transfer
  • You do not invest in the new property within a period of two years or construct within a period of three years after such date

Once you satisfy these conditions, no tax on the capital gains would be levied. And, if you invest a part of the sale proceeds, the exemption will be proportionate to the invested amount to the sale price or exemption.

Tax exemption on the sale of NRI property under Section 54EC:

What if you do not want to invest in the property again?

Well, you still have an option to save on tax in such case. You can invest in certain bonds, which are:

  • National Highway Authority of India (NHAI)
  • Rural Electrification Corporation (REC)

Your investment in these bonds will be redeemable after five years. Simultaneously, you cannot sell them before the lapse of three years from the date of sale of the house property. You will have six months duration upon the sale to invest in these bonds. It is recommended to invest before the return of the filing date. As far as the limit is concerned, you can invest max to max INR 50 lakhs in a financial year in these bonds.

Home Loan Assistance to Buy & Sell Property

Home Loan Assistance to Buy & Sell Property

The price of property is skyrocketing in India. It’s immensely difficult to think about investing in a property through personal finance. There are many reasons behind this fact, like limited monthly income, uncertain expenses etc.. Undoubtedly, funding for home costs an arm and a leg. But still, it’s possible to buy a home. Yes, you can have it through home loan. You don’t need to take out mortgage. Neither do you need to take financial help from your relatives.

There are several home loan possibilities that you can grab on. Catch a cursory look over a few such possibilities:

  1. Home Loan, rather than personal financing:

Do you want to spend your hard earned money somewhere you get higher ROI? It’s an obvious desire if you save a fat amount out of your monthly savings. NRIs, generally, make money in hundreds of dollars every month. For such people, investing in property is a blockbuster idea.

Meantime, taking assistance to buy and sell property would be a better option. Sometimes, personal financing can impose tax. You can come out of the tax-trap through home loan. Apart from saving tax, you can buy a fixed asset that generates rental income.

  1. Flexibility in home loan repayment:

You can purchase a residence even through you’re a salaried employee. Won’t believe? It might be unbelievable but, home loan can make it possible. A few banks, like SBI, provide an option to pay interest only during the moratorium period. Later on, you can pay moderate EMIs.  And, if you want, you can request for stepping up EMIs during upcoming years.

  1. Home Loan for retired army personnel:

If you’re a retired army or defence personnel, you can book a home on loan. Whether or not you live in India, you can borrow money to invest in a property. Many banks run lucrative schemes to lure such retired army officers. They facilitate every valid reason to take home loan, like lower rate of interest on loan and easy repayment options. A few home finance banks allow you to pay amount in a long run. SBI’s Shaurya home loan is its best example.   

  1. Home Loan for retired government officers:

There are a few NRIs who prefer to settle with their kids abroad after completing their tenure in a government job. They can grab a golden opportunity to invest in a commercial or residential plot in India. Thereby, rental income would generate income for their livelihood.

There are certain financial institutions that facilitate loan to such government officials. Moreover, they offer the same benefits to the personnel of the public banks former officers. Such officers can spend their pension into a home. If the amount is short to pay off the wholesome amount, they can select a bank to borrow home loan.

What they should bear in their mind is the policies of that bank. So, if you’re one of those retired government officers, you should thoroughly go through the guidelines of the financial institution or bank. Some banks approve privilege home loan on the basis of some aspects. They can be your income, repayment potential and age. How many assets and liabilities you own and the cost of the proposed house-that bank would like to know these facts also.

  1. Pre-approval home loan:

Do you consider the cost before going to buy a home?  It’s better to analyze prior to make such a big decision. There are a few real-estate agencies and fund providers that sanction home loan limits prior to purchasing any property. This is how you win an option to negotiate with the builder or bank. It would, in return, ask for your income details to assess whether or not it should approve your home loan. However, it probably charges processing fee at the time of sanction.

Tips to Monitor NRIs Property in India

Tips to Monitor NRIs Property in India

NRI’s problems related to property monitoring:

Do you own a property in India?

It’s a walkover if you live in India. You need not spend hundreds of dollars for visiting your own property. Neither would you worry about the encroachers. However, unscrupulous people tend to seize properties. But, if you make occasional rounds, it ensures that your fixed asset would be safe.

Now, see the property monitoring from the lens of an NRI.

Would he be able to make the rounds of his property now and then? Would he be ready to bear on overhead expenses in thousands of dollars once in a month? If he fails to take care of his property religiously, the day won’t be so far when any land-mafia would take over your asset.

Recently, a shocking incident of an NRI’s property has surfaced the Economic Times. It spotlighted the trauma of the one belonging to the Indian diaspora. A non-resident from Zambia purchased a house in the name of his mother. But, his absence for several years gave his siblings an opportunity to acquire that property. His younger brother constructed it without asking the owner.  And, he was unable to take any action against.

Property Inheritance:

However, an expat with an Indian passport is not allowed to invest in any immovable property. But, a relative or friend gifts to it, he can take its ownership. Moreover, he doesn’t need to pay tax as a gifted property is exempt from it. The word ‘relative’ (who can gift the property) includes:

  • Spouse
  • Brother/Sister
  • Brother/ Sister of the spouse
  • A lineal descendant or ascendant
  • A lineal descendant or ascendant of the spouse

But here again, you have to take care of that immovable property by self. Otherwise, the aforesaid problems will take a sneak peek. And, you might lose it.

Benefits of Property in India for non-residents:

  1. Loan against rental income:

The non-residents can apply for 5-year loan upfront against the rental income. Or, they can deposit the paper of the real-estate as a security with the bank. In return, the bank would provide them short-term funds in India. Apart from banks, the housing companies do play the same role. Therefore, you would have a golden opportunity to get a loan. 

  1. Repatriation up to $1 million:

If you use your property in India for generating rental income, you can repatriate that amount.  But, that repatriation would be possible after three-year lock-in period. The lock-in period is the predetermined time.

If it’s generated from an inherited property, you can repatriate up to $1 million in a financial year. There is no lock-in period for this. You don’t need to pay tax. But, you have to provide the documents and certificates attested by the chartered accountant.

Tips to monitor NRI’s property in India:

Are you ready to fight with the encroachers and shady people in India?

Bear in your mind that it’s going to be an uphill battle if you sue from overseas. You can’t visit on every trial. What you can do is to take these steps:

  • Ask any relative or friend to take care of that property.
  • Engrave a nameplate.
  • Go for legal documentation, even if it’s inherited. You must transfer all documents on your name.
  • Pay taxes to the Municipal Corporation and other authorities. Pay through cheques.
  • Keep photocopies of those cheques and documents in a safe place.
  • Don’t empower your attorney with unlimited authority.
  • Specify which kind of authority you’ve provided to him. Be it for maintenance and protection of that property, mention it subtly.
  • Don’t provide the authority to sell that property. Neither should you provide the power to agree over selling that asset.

Let’s wrap up!

Being an NRI, you should keep an observer’s eye on your property on a daily basis. However, it’s impossible. But, you can do it with the help of your friends and relatives. Make them attorney, but while restricting their power. Keep all documents of that property, cheques of tax and their photocopies in a safe place.

What To Keep In Mind While Buying Property in Chennai in 2018?

What To Keep In Mind While Buying Property in Chennai in 2018?

Most of the non-residents live with deep pockets. But, they don’t want to keep all eggs in one basket. It implies that they don’t want to invest their pan hard earned money in an equity or asset.

So, what should they do?

Should they keep that money in a bag for the lifetime?

Absolutely no, not at all!

One idea can help them multiply their money value. Let’s say, they invest in one of the fast developing areas or best place in Chennai or Tamil Nadu, they would get rental income as a capital gain monthly. It’s a viable investment in the property. Yes! It can let the non-residents live off through rental income. Or later, its selling value can make them a millionaire. But before jumping for joy, they must bear in mind these facts:

An act of guidelines called FEMA (Foreign Exchange Management Act) under the purview of Reserve Bank of India (RBI) was constituted in 1999 to look into all matters of NRI property & its management. It has set up a few rules to make the property management as easy as a walkover.

What FEMA suggests as mandatory requirements for NRIs to invest in the real estate?  

  1. The investor should be categorized clearly on the basis of his/her period of stay in India. He/she can be any PIO or OCI as well. But both these categories comprise the identical category namely non-residents.
  2. Those who like to be an owner of a piece of land/property, they must have an Indian passport. Meanwhile, they don’t need to take permission from the RBI for investing, transferring, disposing or inheriting the property as a gift.
  3. If the non-resident wants the property for the residential purpose, he/she can transfer, acquire, dispose of or inherit it. The payment mode, in such case, should be non-repatriation based. The owner must inform the RBI regarding it within 90 days of the purchase.
  4. The immigrant Indian can buy one or many property but that must be immovable residential or commercial property. The property can be any plot, pre-launched property, ready to launch property or any under-construction property.
  5. They are not allowed to invest/acquire in a piece of an agricultural land/farm house/plantation land. But if he/she has purchased such kind of property before joining the non-resident diaspora, he/she can sell. But the buyer must be an Indian citizen living in India.
  6. If he/she is gifted any immovable property, he/she can inherit/transfer/gift it to the resident Indian.
  7. The residents of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan are strictly prohibited to buy any Indian piece of land unless they get the permission of the RBI.

Which documents are required for a land purchase in India?

  1. PAN card (Permanent Account Number)
  2. Valid Indian passport
  3. OCI/PIO card
  4. Address proof
  5. Passport sized photographs
  6. Notarized power of attorney from the India consular service
  7. Employment contract
  8. Salary certificate
  9. Valid visa
  10. Work permit
  11. Work experience certificate
  12. Statement of NRO/NRE a/c

Things to know for NRIs to pay for the land purchase:

  1. He/she can pay the remitted funds via regular banking channels or NRE/NRO or FCNR a/c. Traveller cheque or foreign currency is strictly ‘no’ for the land purchase in India.
  2. He/she can take a loan to get the financial support as per the guidelines of the FEMA regulations. Do bear in mind that banks reject fresh grant of the loan or renew the existing loan if it’s more than INR 100 lakh against the FCNR and NRE deposits.
  3. The loan will be available up to 80 percent of the total property cost. He/she must have the documents that are mentioned from 7 to 12 (in the aforesaid documents requirement) for owing fund as the loan. He/she must pay at least 20 percent of the total value of the land. For the payment of the loan amount, he/she shall pay the principal amount with the interest.
  4. The repayment of that loan can be made through inward remittance. He/she can use any regular banking channel (NRO/NRE/FCNR) or rental income or relative’s a/c to pay the loan.
  5. The non-resident can borrow funds (loan) for the renovation or managing the property that already exists in his/her name. Many housing finance companies offer this scheme for property management in Chennai, Mumbai, Kanpur, Delhi and other metro cities. It payment mode and procedure would be similar to the home loan (as foretold in the 4th tip).
  6. If he/she borrows the loan amount from the employer based in India, it would be permitted provided it is used for the purchase of the property in India. The lender would send the amount into the NEO a/c. For its repayment, the loan papers must read the repayment shall be done through the remittance from the account outside India. The fund shall be credited to his/her NRE/NRO/FCNR a/c. No other payment mode shall be valid.

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