Interest certificate for housing loan for third house
This query is : Resolved
15 September 2016
From,
Lieutenant Colonel SVS Sudarsan
Indian Army
Sir,
I am writing this to clarify regarding provision of interest certificate for housing loan to purchase a third house.
I was given an ancestral land at my native village by my grandfather in which my father has built a house by taking a loan in his name while I was still a student. Later on, he expired and my mother continues to stay in that house.
I also built a small house in my native village in my farm where I stay when i visit my native village.
Now I plan to buy a flat in Bangalore for settling down after I retire from the Army. I have applied for a housing loan from SBI. I have disclosed both the above properties in my housing loan application.
The bank is saying that they will treat the housing loan as a CRE(Commercial Real Estate) Housing Loan as I have already have two houses in my name.
Also they are saying that they will not give me any Interest Certificate for claiming income tax rebate on the interest part.
Are they justified in saying that? Please clarify.
Sudarsan
From,
Lieutenant Colonel SVS Sudarsan
Indian Army
Sir,
I am writing this to clarify regarding provision of interest certificate for housing loan to purchase a third house.
I was given an ancestral land at my native village by my grandfather in which my father has built a house by taking a loan in his name while I was still a student. Later on, he expired and my mother continues to stay in that house.
I also built a small house in my native village in my farm where I stay when i visit my native village.
Now I plan to buy a flat in Bangalore for settling down after I retire from the Army. I have applied for a housing loan from SBI. I have disclosed both the above properties in my housing loan application.
The bank is saying that they will treat the housing loan as a CRE(Commercial Real Estate) Housing Loan as I have already have two houses in my name.
Also they are saying that they will not give me any Interest Certificate for claiming income tax rebate on the interest part.
Are they justified in saying that? Please clarify.
Sudarsan
16 September 2016
It's not justified from banking as well taxation point of view. You may ask him - On which basis they are declaring it CRE? There is no such basis to do so. Secondly, it is not restricted under Income tax act to claim deduction of house loan against income from house property. If assessee is having more than one house property & self occupied - Other than one shall be treated as deemed to be let out & deduction U/S 24 shall be certainly available. So, it's not justified from banking as well taxation point of view.
For further clarifications, you may write us to info@wealth4india.com or Logon to www.wealth4india.com (Online Tax Studio & Start-up Gateway)
Message likes :
2 times
16 September 2016
Sir,
As per banks policy loan for acquiring third house is classified as commercial real estate from the view point if banker. So they cannot include it under priority sector advances. But the interest charged is equal to housing lian advances.this is as per RBI directions
In your case it is your second house as the first house is built by your father.You can mention it with SBI .even they SBI categorised it as commercial real estate it is housing loan for you and you will get all the benefits if tax deduction.
It is the wrong interpretation of law
It is advisable that you mention that it is yoursrsecond house as the first house built by father and father acquired it
And also you can say that CRE is for bank only not to the customer even in the case of third house
Kindly solve the issue through good negotiation
Thank you
As per banks policy loan for acquiring third house is classified as commercial real estate from the view point if banker. So they cannot include it under priority sector advances. But the interest charged is equal to housing lian advances.this is as per RBI directions
In your case it is your second house as the first house is built by your father.You can mention it with SBI .even they SBI categorised it as commercial real estate it is housing loan for you and you will get all the benefits if tax deduction.
It is the wrong interpretation of law
It is advisable that you mention that it is yoursrsecond house as the first house built by father and father acquired it
And also you can say that CRE is for bank only not to the customer even in the case of third house
Kindly solve the issue through good negotiation
Thank you
Message likes :
2 times
16 September 2016
well explained by both the experts needs no further explanation.
Regards
Regards
Message likes :
1 times
16 September 2016
Thank you for your kind replies. I did a little search on the internet on my own and found a RBI circular stating that the third dwelling unit of an individual be treated as CRE. Please SEE NOTE 2 below.
-----------------------------------------------------------------------------
DEPARTMENT OF BANKING OPERATIONS & DEVELOPMENT, CENTRAL OFFICE, 12th Floor, Central
Office Building, Shahid Bhagat Singh Marg, Mumbai-400 001 E-mail : cgmicdbodco@rbi.org.in
RBI/2012-13/ 538 DBOD.BP.BC.No. 104/08.12.015/2012-13 June 21, 2013
All Scheduled Commercial Banks (excluding RRBs )
Dear Sir,
Housing Sector: New sub-sector CRE (Residential Housing) within CRE & Rationalisation of provisioning, risk-weight and LTV ratios
Please refer to paragraph 82 of the Monetary Policy Statement 2013-14 (extract enclosed) on ‘Commercial Real Estate - Residential Housing: Prudential Norms’, announced on May 3, 2013, wherein it was stated that a separate sub-sector of ‘CRE-Residential Housing’ will be carved out of CRE sector.
2. As loans to the residential housing projects under the Commercial Real Estate (CRE) Sector exhibit lesser risk and volatility than the CRE Sector taken as a whole, it has been decided to carve out a separate sub-sector called Commercial Real Estate – Residential Housing (CRE-RH) from the CRE Sector. CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under CRE segment. Such projects should ordinarily not include non-residential commercial real estate. However, integrated housing projects comprising of some commercial space (e.g. shopping complex, school, etc.) can also be classified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10% of the total Floor Space Index (FSI) of the project. In case the FSI of the commercial area in the predominantly residential housing complex exceeds the ceiling of 10%, the project loans should be classified as CRE and not CRE-RH.
3. The above-mentioned CRE-RH segment will attract a lower risk weight of 75% and lower standard asset provisioning of 0.75% as against 100% and 1.00%, respectively for the CRE segment.
2
4. In terms of our circular DBOD.No.BP.BC.69/08.12.001/2010-11 dated December 23, 2010 on ‘Housing Loans by Commercial Banks - LTV Ratio, Risk Weight and Provisioning’, banks are required to make provisions and risk-weight for their housing loans to individuals as per the amount of loans as also the Loan to Value (LTV) ratio for such loans. Further, risk weight and provisioning requirement for CRE Exposures are prescribed vide circulars DBOD.No.BP.BC.83/21.01.002/2008-09 dated November 15, 2008 and DBOD.No.BP.BC.58/21.04.048/2009-10 dated November 5, 2009, respectively. It has been decided to rationalise the prudential norms on risk-weight, provisioning and LTV ratio for individual housing loans, CRE and CRE-RH exposures, as under:
Category of Loan LTV Ratio (%) Risk Weight (%) Standard Asset Provisioning (%)
(a) Individual Housing Loans
(i) Up to Rs. 20 lakh 90 50 0.40
(ii) Above Rs. 20 lakh
and up to Rs. 75 lakh 80 50 0.40
(iii) Above Rs.75 lakh 75 75 0.40
(b) CRE-RH NA 75 0.75
(c) CRE NA 100 1.00
Note: 1 - The LTV ratio should not exceed the prescribed ceiling in all fresh cases of sanction. In case the LTV ratio is currently above the ceiling prescribed for any reasons, efforts shall be made to bring it within limits.
2 – Banks’ exposures to third dwelling unit onwards to an individual will also be treated as CRE exposures, as indicated in paragraph 2 in Appendix 2 to Circular DBOD.BP.BC.No.42/08.12.015/2009-10 dated September 9, 2009 on ‘Guidelines on Classification of Exposures as Commercial Real Estate (CRE) Exposures’.
5. We advise that our extant instruction requiring additional risk-weight of 25 percentage points for restructured housing loans and higher provisioning of 2% (circular DBOD.No.BP.BC.69/08.12.001/2010-11 December 23, 2010) for housing loans extended at teaser rates by banks will continue to remain in force.
Yours faithfully,
(Chandan Sinha) Principal Chief General Manager
3
Extract from Monetary Policy Statement 2013-14
Commercial Real Estate - Residential Housing: Prudential Norms
82. In September 2009, the Reserve Bank had issued guidelines on classification of certain exposures as Commercial Real Estate (CRE) exposures. CRE exposures are sensitive in view of their inherent price volatilities. Therefore, these exposures generally attract higher risk weights and higher provisioning requirements. However, it has been generally observed that the residential housing complex sector under the CRE poses lower risk than the other components of CRE sector. Accordingly, it is proposed to:
• carve out a sub-sector of ‘CRE-Residential Housing’ within the CRE sector with appropriate prudential regulatory norms on risk weights and provisioning.
Detailed guidelines will be issued by end-June 2013.
Why is the Bank saying that they will not give Interest Certificate for CRE Housing Loan? In which document of SBI will this clarification will be available?
-----------------------------------------------------------------------------
DEPARTMENT OF BANKING OPERATIONS & DEVELOPMENT, CENTRAL OFFICE, 12th Floor, Central
Office Building, Shahid Bhagat Singh Marg, Mumbai-400 001 E-mail : cgmicdbodco@rbi.org.in
RBI/2012-13/ 538 DBOD.BP.BC.No. 104/08.12.015/2012-13 June 21, 2013
All Scheduled Commercial Banks (excluding RRBs )
Dear Sir,
Housing Sector: New sub-sector CRE (Residential Housing) within CRE & Rationalisation of provisioning, risk-weight and LTV ratios
Please refer to paragraph 82 of the Monetary Policy Statement 2013-14 (extract enclosed) on ‘Commercial Real Estate - Residential Housing: Prudential Norms’, announced on May 3, 2013, wherein it was stated that a separate sub-sector of ‘CRE-Residential Housing’ will be carved out of CRE sector.
2. As loans to the residential housing projects under the Commercial Real Estate (CRE) Sector exhibit lesser risk and volatility than the CRE Sector taken as a whole, it has been decided to carve out a separate sub-sector called Commercial Real Estate – Residential Housing (CRE-RH) from the CRE Sector. CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under CRE segment. Such projects should ordinarily not include non-residential commercial real estate. However, integrated housing projects comprising of some commercial space (e.g. shopping complex, school, etc.) can also be classified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10% of the total Floor Space Index (FSI) of the project. In case the FSI of the commercial area in the predominantly residential housing complex exceeds the ceiling of 10%, the project loans should be classified as CRE and not CRE-RH.
3. The above-mentioned CRE-RH segment will attract a lower risk weight of 75% and lower standard asset provisioning of 0.75% as against 100% and 1.00%, respectively for the CRE segment.
2
4. In terms of our circular DBOD.No.BP.BC.69/08.12.001/2010-11 dated December 23, 2010 on ‘Housing Loans by Commercial Banks - LTV Ratio, Risk Weight and Provisioning’, banks are required to make provisions and risk-weight for their housing loans to individuals as per the amount of loans as also the Loan to Value (LTV) ratio for such loans. Further, risk weight and provisioning requirement for CRE Exposures are prescribed vide circulars DBOD.No.BP.BC.83/21.01.002/2008-09 dated November 15, 2008 and DBOD.No.BP.BC.58/21.04.048/2009-10 dated November 5, 2009, respectively. It has been decided to rationalise the prudential norms on risk-weight, provisioning and LTV ratio for individual housing loans, CRE and CRE-RH exposures, as under:
Category of Loan LTV Ratio (%) Risk Weight (%) Standard Asset Provisioning (%)
(a) Individual Housing Loans
(i) Up to Rs. 20 lakh 90 50 0.40
(ii) Above Rs. 20 lakh
and up to Rs. 75 lakh 80 50 0.40
(iii) Above Rs.75 lakh 75 75 0.40
(b) CRE-RH NA 75 0.75
(c) CRE NA 100 1.00
Note: 1 - The LTV ratio should not exceed the prescribed ceiling in all fresh cases of sanction. In case the LTV ratio is currently above the ceiling prescribed for any reasons, efforts shall be made to bring it within limits.
2 – Banks’ exposures to third dwelling unit onwards to an individual will also be treated as CRE exposures, as indicated in paragraph 2 in Appendix 2 to Circular DBOD.BP.BC.No.42/08.12.015/2009-10 dated September 9, 2009 on ‘Guidelines on Classification of Exposures as Commercial Real Estate (CRE) Exposures’.
5. We advise that our extant instruction requiring additional risk-weight of 25 percentage points for restructured housing loans and higher provisioning of 2% (circular DBOD.No.BP.BC.69/08.12.001/2010-11 December 23, 2010) for housing loans extended at teaser rates by banks will continue to remain in force.
Yours faithfully,
(Chandan Sinha) Principal Chief General Manager
3
Extract from Monetary Policy Statement 2013-14
Commercial Real Estate - Residential Housing: Prudential Norms
82. In September 2009, the Reserve Bank had issued guidelines on classification of certain exposures as Commercial Real Estate (CRE) exposures. CRE exposures are sensitive in view of their inherent price volatilities. Therefore, these exposures generally attract higher risk weights and higher provisioning requirements. However, it has been generally observed that the residential housing complex sector under the CRE poses lower risk than the other components of CRE sector. Accordingly, it is proposed to:
• carve out a sub-sector of ‘CRE-Residential Housing’ within the CRE sector with appropriate prudential regulatory norms on risk weights and provisioning.
Detailed guidelines will be issued by end-June 2013.
Why is the Bank saying that they will not give Interest Certificate for CRE Housing Loan? In which document of SBI will this clarification will be available?
16 September 2016
circular is for banks internal purpose, not for customer. Banks contention doesn't seem justified from tax law angle. Thanks
25 September 2016
thanks to all of you who have patiently replied to my query.
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