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Understanding Maintenance Charges

Posted by Balaji on February 16, 2021
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Maintenance charges are one of those sneaky costs that seep in and inflate what seemed like a reasonable price until then. Often, new home buyers are caught unawares as they get attracted by the enticing figures that builders cleverly promise on new houses and projects. But those numbers change considerably once relevant infrastructure, approvals, and other facilities are set in place as they need to be managed at a separate cost. These additions drive up the spending that ultimately goes out from the home buyer’s wallet.

To understand the ins and outs of maintenance costs, and prepare yourself if you are a first time home buyer, we have compiled a handy guide for you.

What do maintenance charges cover?

Maintenance charges essentially encompass all the basic infrastructure and amenities like elevators, parks, emergency exits, fire and safety, common areas, parking facilities, and centrally controlled services like water and electricity among others.

Initially, it is the responsibility of the builder who collects the maintenance charge from the tenants to maintain these facilities.  Once a residents association takes shape, this responsibility falls upon them, and they are allowed to change or implement new rules for consistently improving maintenance.

In the absence of a society or association, the builder continues to be in charge of maintenance.

Are there any laws that regulate charges for maintenance?

The Real Estate Regulatory Authority (RERA) specifies that the builder must sign a maintenance agreement, which mentions the fees, payment schedule & breakdown of costs for utmost transparency.

How can maintenance charges be split down?

Usually, maintenance fees are charged on an individual flat or per square foot basis. Service charges like cleaning, housekeeping, and usage of equipment, as well as the expenses required for repair and maintenance of common facilities like elevators, are split equally among the flats. Electricity and water charges would be as per the consumption of each flat.

Interest-Free Maintenance Security (IFMS) charges

IFMS is a compulsory lump sum that the home buyer pays the builder who deposits it in a separate account before a residents association is formed. Following that, the builder is expected to pass the total sum to an association for maintenance expenditures. The system is useful in case of unexpected breakdowns in facilities or for future improvements such as park extensions or tightening security.

In addition to the IFMS, some developers collect a sinking fund that distinguishes between the two. A sinking fund is a sum reserved by homeowners for emergencies and repairs, while the IFMS is used to cover regular and ongoing maintenance costs such as minor repairs and contractors’ fees, according to the developers. So new home buyers should get proper information before moving in.

What about taxes?

Before the introduction of GST, a service tax of 15 percent and Swachh Bharat tax of 0.5 percent, and a non-agricultural tax of 0.5 percent was imposed on maintenance charges. With the coming of GST, the tax rate has gone up to 18 percent.

 

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