Archives August 2010

Guide to Income Tax for Apartment Associations

Income Tax for Housing Societies

For most apartment associations, member contributions form the major chunk of their income. These contributions by members are credited to different heads by the housing association. These include Maintenance charges, Property Tax, Sinking Fund, Municipal taxes, etc. This income that the society generates is used to meet the day-to-day expenses of the society. The expenses and any amount that is left over after making payments are not subject to income tax. Because of this some members assume that housing associations are exempt from paying any kind of tax. This is not so. Apart from member contributions, a housing society may generate income from other sources as well, some of which can be taxable. As per the provisions of the Income-tax Act, Co-operative Societies are treated as an association of persons and are supposed to file the Income Tax returns if this income is in excess of Rs.20,000/.

To pay Income Tax, a Co-operative Society should get a Permanent Account Number by making an application in Form No. 49A. Since housing associations generate income to provide services to themselves rather than to generate profit, there are many exemptions that they can avail of. The deductions in respect of income are provided under Section 80P of the Income Tax Act. Each of these deductions is distinct and independent and the category of income needs to be considered to decide under which head the deduction belongs to.

Let’s take a look at some of the heads under which income is taxable and the exemptions available:

Non –Occupancy Charges

If monthly charges paid by members are not taxable, why should that paid by non-occupying members be taxable? The logic that the Income Tax department uses is simple. It levies tax on non-occupancy charge on members because the owner of the apartment / flat is paying for facilities that he/she is not enjoying. This is in contrast to residing members who are paying for facilities that they are utilizing.

Transfer fee

Whenever a member transfers his share, rights and interest in a property, the member has to pay a transfer fee to the housing society. According to the Model Bye Law, the transfer amount is to be fixed by the general body meeting. However, the amount shall not exceed Rs. 25,000. This amount is taxable under the Income Tax Act.

Rental income from advertisement hoardings

The amount earned as rent from advertisement hoardings in the society premises is fully taxable under the head Business Income / Income from other sources. However any expenses that can be directly attributable to the earning of this income can be claimed as deduction.

Rental from Cable and Mobile Towers

Similar to the revenue earned from advertisement hoardings, the rental earned from Cable and Mobile Towers is taxable under the head Income from House Property. Under this head, it is also eligible for standard deduction u/s 24 (a) @ 30 % of the rent. In case the society has borrowed capital to construct any infrastructure to support the Cable / Mobile Towers then a proportionate deduction can be claimed for interest paid on the borrowed capital.

Rental from Open Spaces/Terraces

Open spaces and terraces can be rented out to members as well as outsiders. If the area is rented out to Members then the income will not be taxable. However, if the rent has been received by non-members then the income is taxable under the head Income from House Property & will qualify for deductions as mentioned earlier.

Parking and Shop Rental Charges

Parking charges levied by members is not liable for tax as it is part of the income that is paid by members for the services used by the members. However, the amount that is earned from outsiders vehicles is liable for Income Tax.
Some societies have shops within its premises. The maintenance charges and any other income earned from these shops are taxable if it serves non-residents. But if it is only for the purpose of the residents, then any income earned from it is not taxable.

Interest on investments and Dividends

Housing societies may invest their excess funds to earn interest on it. This investment can be in Co-operative banks or any other institution. The interest that the society earns on investments made in Co-operative Banks qualifies for deduction @ 100% under section 80P (d). Other income, however, is fully taxable. Similarly dividend income received from Indian Companies under section u/s 10 (34) and Co-operative Banks under section 80P (d) are 100% deductible.

Miscellaneous Income

Sometimes, the housing society may receive an additional amount from a builder for additional floors to be built. In such a case, the income earned will be termed as short term capital gains if the society is less than three years old and the entire amount will be taxable. If the society is more than three years old then it will be treated as long term capital gains which it can invest in suitable instruments to gain tax exemption u/s 54EA/EB.

Slabs and Deductions

A Co-operative society qualifies for a general deduction of Rs. 50,000 under section 80 P (2) (c) against any business income.

The income tax slab for societies is as follows:

Income up to Rs. 10,000 10 %
Income up to Rs. 20,000 20 %
Above Rs. 20,000/- 30 %

The applicable Education and Higher Education Cess would have to be added to this.


This article aims at collating and providing a ready to use guideline for treasurers of the association for benefit of ApnaComplex customers and blog readers. While ApnaComplex has taken every care to ensure the information is accurate, we suggest to please use the information in the article as a guidance and do your own due diligence before calculating the tax. If you need professional advice on this topic and any other property related matters, please send your request through our contact us form.

Be an Ideal Resident of your Apartment Complex

Managing the affairs of an apartment complex is not just the responsibility of the Managing Committee. Surprised? Don’t be. Just as the quality of your family life depends on the behaviour of all members of the family, the quality of life you enjoy in your complex and the manner in which it gets maintained depends a lot on how you interact with the committee and the rest of the members. We list below a few such interactions which can well decide how well your society functions.

Breach of bye-laws

It is not unusual for members to have some disagreements with the Managing Committee. Usually such disagreements are resolved amicably over a period of time. But sometimes a member decides to respond to a perceived negative action on the part of f the Managing Committee with their own illegal actions. They feel it’s the best way to get back at the Committee and have a resolution in their favour. Some deliberately breach a bye-law or stop paying their maintenance charges to the society.

Members should realize that breaking a bye-law or withholding payment of maintenance is not the legal way of complaining against the Managing Committee. They should get their complaint addressed by the competent authorities as per the bye law. If they withhold their dues to the society, the Managing Committee can issue a showcase notice to them apart from instructing the authorities to impose severe penalties on the member. Members should realize that no matter what the provocation, the society needs funds to run smoothly. And by holding back on their payments they are harming their own interests.

Unauthorized constructions

Just because members have paid for their flats and apartments doesn’t give them the right to do anything they wish within their premises. The way they behave and conduct themselves has an affect on the lives of other members of the complex. This is especially true for constructions and renovations that members carry out in their flats or outside. Members should check with the society if the construction activity they plan to carry out is within the rules of the society. If they are planning to renovate their apartment and it involves some amount of construction activity then do get the consent from the Secretary of your Managing Committee in writing. Make sure that any changes done will not inconvenience the flat owners staying below in the form of leakages or loud noises for an extended period of time. Plan ahead on where the debris will be dumped. If any member feels that a particular construction activity is affecting their lives they have every right to complain and seek redressal.

While members breaking down pillars and altering parts of the building’s fundamental structure are quite common there have also been instances when a group of members have built a temple or a club within the premises without taking the society’s approval. Any such activity is illegal and can be dealt swiftly by the society. In such a situation the Managing Committee can inform the municipal corporation which can take immediate and punitive actions against those members and the construction that has been carried out. 

Asking for favors from the Managing Committee

Some members might be close friends to managing committee and thus might tend to ask for a favor – like waive off that penalty charge for late payment, or reduce the club house rent for your function. This would be a huge dis-favor to the rest of the community. This puts the managing committee members in a delicate situation where they would be forced to chose between the friendship or performing thier role. Do avoid asking for a favor and just abide by the by-law.

Common Property

The society has a major say about common areas like the terrace, gardens, etc. For example, the society may disallow members from installing TV or personal dish cable antennas on the terrace as it could damage the wall or the terrace leading to leakages. In such a situation, the member can request the society to consider putting a common antenna that could be used by all residents of the society. Similarly, residents putting potted plants in their balconies could lead to water dripping and thus dirtying the outside wall. Sometimes the watering is done in such a manner that it falls into the balconies of the member who stays directly below. In both cases, the society can raise an objection to this and make the member remove or alter the manner in which the plants are taken care of.

Pets

Many people love to keep pets. Unfortunately, apartment complexes are not always the best environment for pets as it may sometimes inconvenience other members. Those members who’d like to keep pets should therefore try to understand the reason for any objections that may be raised by fellow-members and address it in the best way possible. They should remember that everyone who complains about pets should not be automatically categorized as animal haters. The members who complain may have genuine concerns which need to be addressed.

What pet owners should be aware is that banning licensed pets from an apartment complex is not legally valid. But they should also not misuse this right to let their pets cause a nuisance and dirty the common areas of the society. While showing their commitment to their pet they should also show respect to the concerns of other residents. Some simple steps include cleaning any littering that is caused and always keeping the pet on a leash so that you are able to control your pet when required. Managing Committees should realize that although the society can frame certain restrictions, they cannot curtail the fundamental rights of the members and any resolution that is seen as discriminatory can be challenged in a co-operative court. 

Participating in society meetings and elections

The middle class and the upper middle class are infamous for their aversion to participating in any kind of elections – whether state or national-level. This antipathy gets extended to their society meetings and elections as well. There are many instances of members unwilling to accept any responsibility in running the affairs of the society but demanding that the Managing Committee is available at their beck and call. They may also skip attending meetings on crucial topics due to personal commitments and then blame those who took the decision for any untoward result that occurs.

Every member should realize that it is their duty to be present in as many meetings as possible so that they can make their point heard and influence the decision-making. Their commitment to the affairs of the society doesn’t end with just giving a cheque for the monthly maintenance. They have to work with every other member to make the society run as efficiently as possible. To make this possible they should also be willing to put up their hands and share any skills they may have when the need arises.

These are just a few of the areas in which the behaviour of the members can decide how efficiently an apartment complex gets managed. We hope you are playing a proactive role in the affairs of your apartment complex – whether you are part of the Managing Committee or not!


Want to use ApnaComplex for your association? please submit details of your complex here and we would reach out to you to set up your complex’s portal online.

Take control of your Apartment Association documents!

Starting today, ApnaComplex supports control access mechanism for the documents stored in the document repository.

When a Repository Admin or Community Admin uploads a document into the repository, the admins have an option to set the access level such that the document is available only for Administrators and not to the entire community. This can help in storing documents relevant to the committee members only – like vendor contracts, association letter heads, work-in-progress presentations.

In addition, the document repository supports categorization of documents with powerful searching and sorting – no need to remember which sub folder is a document present in. Just type few letters of one or more details related to the document – such as document name, category, description, date of upload or name of member who uploaded the document – you shall get the document instantly. Makes it very simple and easy with out clutter of sub-folders.

Stay tuned to our blog to know about more exciting features that we would be releasing shortly.

Want to use ApnaComplex for your association? please submit details of your complex here and we would reach out to you to set up your complex’s portal online.


Now, use a facility booking system which is as good as the facilities in your apartment

Starting today, we release a new feature of Facility Booking to all ApnaComplex customers.

One aspect of a residential complex living is to share the “common facilities” with all residents of the complex and there starts a trouble as most residents never get a chance to use the facility at a time of their choice. This is where facility management feature comes in handy.

The facility booking module helps residents know the list of people who intend to use a facility on a given day. Residents can book facilities like Club House for personal events like Birthday parties or regulate their gym schedules so that there will not be timing clashes with fellow residents.

Directory of Facilities - Sample Screen shot

Directory of Facilities - Sample Screen shot

With this addition, a new role “Facility Booking Administrator” is also introduced who can be given total charge of facility reservation. To start using this feature, the administrators need to first set up the facilities available in the complex. Once the facilities is set up, other members can see the same and start booking the facilities to suit their needs. It is as simple as that.

Sample Screenshot containing list of bookings of a facility on a given day

Sample Screenshot containing list of bookings of a facility on a given day

As with most operations in ApnaComplex, Administrators have the authority to cancel any member’s booking if required. This, of course is in addition to the user having the ability to cancel his/her reservation at any time.

Stay tuned to our blog to know about more exciting features that we would be releasing shortly.

Want to use ApnaComplex for your association? please submit details of your complex here and we would reach out to you to set up your complex’s portal online.

 


Before you buy: A checklist for Apartment Buyers

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If you are looking for a checklist to download, click here.

Buying an apartment is one of the most exciting, yet at the same time, most challenging tasks in life. It is exciting because it is one of the biggest financial and emotional commitments one can make. At the same time, buying a home is one of the most demanding activities because of the many pitfalls involved in the process. From fly-by-night developers who are only interested in making a fast buck to poor quality of construction to use of inferior materials and fittings to lack of supervision and inadequate approvals from the concerned government authorities… there are many issues that an apartment buyer has to grapple with. In this article we try to offer you a checklist that could help you decide whether your money and efforts will buy you an apartment that you’d be proud to call home.

Whether you’re planning to buy an under-construction property or a ready-possession flat, do go through the check list given below:

Know the builder

It is always better to go with a builder who has an established presence in the market. A builder who has a good reputation in the market may charge a slight premium over the other builders, which could be well worth it. Consider it as an investment for your peace of mind. Check the following facts about the builder before you decide to consider a certain property:

  • Has the builder constructed sufficient number of projects to establish a reputation?
  • Does the builder enjoy a reputation for completing projects on time?
  • Is the quality of their projects as per the standards you’re looking for?
  • Is the quality of staff employed by the builder helpful and courteous with your queries?
  • Do the leading financial institutions have tie-ups with the builder?

Know the project

Once you’ve short listed the builders whose properties you’d like to buy, find out more about their projects by using the following checklist:

  • Is the project located in an area of your choice?
  • Is the project easy to access by road and rail?
  • Does it have common facilities within easy reach?
  • What is the distance from critical infrastructure like schools, hospitals, fire and police stations?
  • What are the future civic plans for the locality?
  • What is the weather impact on the locality? Does the area get flooded during the monsoons?
  • What is the noise and air level pollution in the area?
  • How is the water availability in the area?
  • What is the number of buildings that are being planned? Will the long construction period affect the quality of living?
  • What is the project plan? Does it leave enough open space for leisure activities?
  • Does it have enough parking spaces for residents and visitors?
  • If the building has lifts does it have back up power supply?
  • Is the construction environmentally and structurally sound? Is it an earthquake-proof construction?
  • What would be the monthly maintenance outgo for the project?
  • Is the project in a safe locality? Does the project offer security staff cabins and intercoms?
  • If you’re buying a flat on resale or in a ready constructed property, check with the existing owner’s association and existing residents. You should be able to get lot of valuable information regarding the project and the locality.

Know your apartment

Once you’ve identified the projects that you’d be interested in investing, check out the apartment with the help of the following checklist:

  • Get the floor plan of your apartment.
  • Calculate the carpet area of the apartment.
  • Check out the inside and outside wall finish. Does the outside wall have a weather coat?
  • Check the floorings used. Does the bathroom and kitchen have floorings that are safe?
  • Inspect the electrical fittings. Do they have child-safe fittings? Are the electrical fittings of a reputed brand?
  • Check the bathroom and kitchen fittings. Are they of a quality brand?
  • Check the door and window quality. Are the doors built to provide easy access? Do the windows allow enough light and air into the rooms?
  • Does the flat allow cross-ventilation for better circulation of air?
  • Does the ceiling have sufficient height?
  • Are the features offered in the rooms of contemporary style and usability?
  • Is the view from all windows of the room acceptable?
  • Do the rooms have provisions for AC fittings?
  • Are there enough outlets for phone, TV and internet connections?
  • Are there provisions for storage and drying clothes?

Know your documentation

Even if you’ve liked an apartment, don’t be in a hurry to sign up the deal and hand over your money. Go through the following documentation carefully to save yourself years of headache later on. These documents are the final checklist that you need to verify before you make your buying decision.

  • What is the rate quoted per square feet? Is it reasonable when you calculate it in terms of the carpet area?
  • There are other statutory charges along with additional charges that the builder quotes outside of the apartment cost. Have you considered those costs?
  • What are the extra amounts that the builder is charging?
  • How much will the statutory charges such as Stamp Duty, Registration Fee, Electricity connection fee, Water connection fee, Sales Tax, Building tax, service tax and other expenditure add up to?
  • If you’re going for an under-construction flat, what will be the payment schedule? In case, you are booking a flat in an under construction apartment, ask for a copy of the schedule and any service and value added tax that you may have to pay.
  • Compare the layout of the apartment with the plan given by the builder. Is there any difference between the two?
  • Does the documentation provided by the builder suggest a clear title? Get it verified from a government authority if you need to be sure.
  • Check the fittings provided in the apartment with the promises made by the builder in their brochures.
  • Check if all the necessary property approvals have been obtained from the land development or planning authorities under the Urban Land Ceiling and Regulation Act and the Income-Tax Act.
  • Has the municipal corporation issued an occupancy certificate to the project? Insist on seeing this.
  • If you’re buying a resale property, check the ownership document to see the earlier transactions. Also check that the required statutory approvals including stamp duty and property registrations have been done.
  • Check that the builder has acquired all the legal approvals from the Municipal Corporation the Electricity Boards, the water supply and Sewage Boards and the Area Development Authorities.

While the above list is not comprehensive, most buyers consider only a few of the above parameters that are listed above when investing their hard-earned money in their home. Following this checklist will appear time-consuming. But believe us, it will save you years of trouble and offer you peace of mind that really lasts.

We wish you the very best for your dream home!

The entire checklist can be downloaded in excel format from here.


Read also:
Guide to Buying a Property in Bangalore from a Legal Perspective
How to purchase an Aparment in Bangalore – Some Tips


This article aims at collating and providing a ready to use checklist for prospect buyers of an apartment for benefit of ApnaComplex blog readers. While ApnaComplex has taken every care to ensure the information is accurate, we suggest to please use the information in the article and the template provided as a guidance and do your own due diligence before buying any property. If you need professional advice on this topic and any other property related matters, please send your request through our contact us form. We encourage readers to post more items that can be added to the checklist ad we would be glad to release an updated checklist for benefit of the buyers.