Posted on: February 3, 2017

How the RERA Act is Changing Real Estate in India


As India cements its positions as a leading player in the global market, industries and businesses have witnessed unprecedented growth, which have contributed significantly to skyrocketing real estate prices. However, the legal framework supporting India’s real estate segment required a much needed overhaul and the Real Estate (Regulation and Development) Act, 2016 (RERA Act. 2016) was introduced to serve exactly that purpose. In the following sections, we will discuss some of the key changes that the RERA Act, 2016 has made in India’s real estate industry.

Improved Oversight of Projects

Subsequent to ratification of this act by an individual state, a State Real Estate Regulatory Authority will be set up. This state-level authority would be empowered to oversee all commercial and residential realty transactions in the state and also provide redress to the wronged parties on a case by case basis. The State Real Estate Regulatory Authority will also have the power to enforce punishment and fines on those who do not follow the new rules and regulations.

Increased Transparency

As per the RERA Act, real estate developers are mandatorily required to deposit 70% of the funds allocated for project development into a designated bank account. Each project will have a separate dedicated account so that the funding for one project is not diverted to another by the developer. Additionally, it is now mandatory for the developer to provide all pertinent project information including plans, layout, approvals, sub contractors’ list, timelines etc. such that it can be easily accessed by customers as per their requirement.

Clear Legal Definitions

Prior to implementation of the RERA Act, it was common practice to advertise size of property on the basis of super-built area. The super-built area did not have a legal definition and it often misled home-buyers. Now, project information will be provided based on the carpet area, which has been legally defined in the law making it easier for home buyers to evaluate properties.

Redress for Project Delays and After Sales Service

Before the RERA Act was introduced, project delays often led to losses in terms of missed tax benefits or delayed tax benefits, which will now have to be borne by the developer instead of the home buyer. This translates into the developer being liable to pay the interest incurred on a home loan being serviced by the buyer for a property whose possession has been delayed. Moreover, buyers can now legally demand after sales services from the developer for project deficiencies that are recognized within one year of property handover.

Quantifying the Tax Benefit Losses due to late Property Handover

The tax benefits available in case you apply for a home loan and get it approved are available in two categories – Section 80C and Section 24 of the IT Act, 1961. The section 80C benefit is related to the home loan principal payment which is capped at Rs. 1.5 lakhs annually. Section 24, on the other hand, covers all the interest payment benefits of the loan and features a cap of Rs. 2 lakhs annually. Let’s illustrate the potential tax savings generated under Section 24 with an example:

Home Loan Principal = Rs. 75 lakhs

Interest Rate = 8.5%

Loan Tenure = 20 years

Total Interest Payable over loan Tenure = Rs. 81 lakhs (approx.)

Table1. Potential Tax Savings Benefits Under Section 24*

  Total interest payable over loan tenure Section 24 Benefits  Potential Tax Savings Under Section 24 over loan tenure (20 years)
Rs. 81 lakhs (approx.) Max. Rs. 2 lakhs annually (Rs. 2 lakhs each year for 17 years) + Rs. 2.81 lakhs (for the remaining 3 years) = Rs. 36.81 lakhs

*The facts and figures in the table are illustrative and subject to periodic change based on key factors.

However, these potential savings will be available to you only in case you receive possession of the house within 3 years. Otherwise, if the developer delays possession by a period exceeding 3 years, these potential tax saving benefits would not have been available to you. Now with the implementation of the new RERA Act, the developer is liable to pay for any home loan tax benefits that you are unable to receive due to late delivery caused by project delays.   

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