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V Nagarajan: Provisions of taxing rental income simple and easy
December 24, 2017
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I have been receiving rental income out of investment in residential and commercial property in India.  Is there any cap in the taxation on the interest paid for availing loan to invest in properties? Ramesh Rao, Dubai.
The provisions of taxing rental income are simple and easy.  From the rental income, deduction is available in respect of actual payment of house tax as also a special 30 per cent deduction is available towards repairs, maintenance and collection charges of the property.  Another important feature is that complete deduction is available without any upper limit of the interest paid by NRI for investment in property.  It is worthwhile for NRIs to make investment in real estate specially the real estate acquired for receiving rental income by availing a loan for investment in property. 

I am planning to raise short-term funds by mortgaging the commercial unit in Hyderabad.  What are the procedures involved while mortgaging the unit to a financial institution? Please clarify. Nazeem, Sharjah.
You can mortgage the commercial property without the need to obtain permission from any quarters. NRIs/PIOs can mortgage to an authorised dealer/housing finance institution in India without the approval of Reserve Bank of India.  However, if you wish to mortgage the property to a party abroad then prior approval of the apex bank is required. 

I am leasing my residential property in Bengaluru by entering into a lease agreement with the tenant.  Is registration of the lease deed compulsory?  Please advice. Praneeth Kumar, Ajman.
The Transfer of Property Act makes a distinction between a lease requiring to be registered and those not requiring registration.  However, a lease of immovable property from year to year or for any term exceeding one year or receiving a yearly rent has to be made by a registered document.  At the same time, a lease for duration of less than one year, if not accompanied by delivery of possession, does not require to be registered.

Though registration of a lease for a term not exceeding one year is optional, it is always in the interest of the parties to get it registered.  Non-registration of a compulsorily registrable lease deed has several consequences. 

Notes

Affordable housing sector has recorded a surge of 27 per cent in new units launched y-o-y, according to a recent survey.  More than 26,000 new units have been launched during this year so far.  Of the total new launched, 40 per cent were in Mumbai, followed by Kolkata and Pune.  However, overall residential unit launches recorded a decline of 33 per cent during the first three quarters of this year. 

With the central government’s focus on housing for all, affordable housing segment is expected to continue its growth momentum.  Affordable housing segment was also accorded industry status.

In terms of overall mall performance as well as rental value appreciation across Tier I cities , suburban malls are fast catching up with their prime city counterparts 2009 2011 Completions.

New Completions Net Absorption Vacancy Withdrawal of inferior malls and regulated mall supply across cities, is likely to result in steady vacancy rates in 2017.  Strong absorption with few key completions in Kolkata, Pune and Bengaluru has resulted in marginal increase in overall vacancy (3Q17).   India’s overall vacancy in organized retail sector is recorded at 15.0% (3Q17).   Good quality malls across cities have been performing well whereas less superior malls are being withdrawn or converted.   A total of 8.9 million sq. ft. of mall space has been withdrawn across cities (Delhi-NCR, Mumbai, Pune and Chennai) from 2015 to 3Q17.   Marginal rental value appreciation was recorded in select submarkets in cities like Delhi-NCR, Pune and Mumbai, q-o-q (2Q17 to 3Q17).

Over presence of retailers/brands in established retail centres viz. the metro cities has created the need for expansion and entry to other emerging locations i.e. the smaller Indian cities are set to pave the way for sustainable future retail growth. Retailers are looking actively beyond these metro (Tier I) cities to explore the opportunity offered by a large consumer base hungry for experiential retail.

What adds to the attraction of these smaller cities, which are future centres of retail growth in the country is availability of land at cheaper prices, lower rentals, new high street formats and a younger generation of retailers now willing to experiment with new leasing formats. Investors have also sensed the opportunity these towns offer and the investment flows show that slowly these smaller Tier II & III cities are making their mark on the retail real estate stage. Amongst these the clear winners will be those who can offer affordable real estate options and a consumer base which is willing to experiment with new brands.

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The author is a business analyst
covering Indian property markets

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