Know all about Home Loans

Buying a home is a big decision in anybody’s life. It is a purchase that makes a difference to your day-to-day life. This is the place where you spend a lot of time, a place you come back to after a hard day’s work to rest and for some time of peace.

Once you have decided on the house and bought it [investing your lifetime savings, borrowing money and really squeezing whatever sources of money you have], changing homes because of some important oversight on your end is extremely difficult. It is not like buying a pair of jeans, which, if it is small in size, you can go back to the shop and have it exchanged for a bigger size! Once you purchase your home, it is for keeps - for better or for worse. In a large way, buying a home is like marriage.

So, we suggest, check things out before you make a choice!

Let us take you there!!

We suggest: First things first - Prepare your funding strategy

This is the main deterrent to buying a home. Every time one hears people say, “I can’t afford my own home.” Here are your possible sources of funding your home.

Your own money is the first source!

You can borrow funds from your relatives or friends (if they are good enough to lend without having any expectations from you!)
You can borrow funds from your bank, take a loan against your Provident fund account or borrow from a housing finance company (this is a more professional method of borrowing since you pay interest and are buying a service).

So what will the lender expect from me?

If you are borrowing from relatives and friends, your charisma, personality, charm, convincing powers should hopefully take you there. But if you are borrowing from a funding agency such as a bank or a housing finance company, they will judge your ability to pay back the loan [they will check if you are earning enough money!], the quality of your guarantor, if any and any other liabilities you may have.

They will also check about the stability of your job (if you are salaried) or your business (if you are self-employed). And of course, they will mortgage the house in their favour till you pay back every penny you owe them! Besides, they will expect you to fund at least 15% of the house from your own personal money for down payment before they grant you that loan.

You need to understand the funder’s predicament. They have to wait for a long time to get their money back from you. Average loan tenures are around 15 years!

What if the lender turns me down?

Don’t worry. Approach another one. Each housing finance company has its own internal norms of accepting or rejecting a loan application.

If the lender is willing to lend me more money even though I don’t need it, should I take it?

Don’t. Understand that this money does not come free. You are being charged interest at current lending rates. Also, you need to be comfortable with your own repayment capacity. Don’t over-borrow and then have to struggle for repayments. The end may be disastrous with the lender repossessing your home due to your incapacity to repay that loan.

Want a home loan? Let us take you there!

Have a basic idea of the location and size of the flat you are looking out for [how many bedrooms you may need, proximity to work place, school, etc].

While deciding your need, keep in mind your future requirements such as expansion of your family. Calculate the required area of your flat in the form of ‘Carpet area’ [this is measured from the inner sides of wall to wall and is the net usable area], ‘Built Up area’ [this includes the thickness of the walls of the flat in addition to the carpet area. This is generally about 15% more than the carpet area. For instance, if the carpet area is 1000 square feet, the built up area will be 1150 square feet] or ‘Super Built Up area’ [this includes common areas such as the corridors, the lift, the staircase, etc and is about 25-35% more than the carpet area. Area is measured either in the form of ‘Square Feet’ or ‘Square Meters’. [1 square meter = 10.764 square feet].

We suggest: Get an idea about property rates in areas of your interest

Check out newspapers, friends, websites, for homes that seem to be fitting in what you have in mind in these locations. Publications of help would be the Accommodation Times or websites such as indiaproperties.com.

Buyer’s market, seller’s market or neutral market

Property rates will be dependent on the market conditions prevailing at that time.

Buyer’s Market: Here, there is a demand/supply mismatch between properties. This means that there are more homes on sale and fewer buyers. Prices are low at these times.

Seller’s Market: Here again, there is a demand/supply mismatch between properties. In this situation, there are more buyers and fewer properties available for sale. Prices are high at these times.

Neutral Market: Here, the demand/supply is balanced with no significant excess on either end. Prices are reasonable at these times and home transactions happen at a steady pace.

Which market am I in?

Find out from your broker how quickly homes are being sold in the market. If homes sell in less than 45 days, it is probably a seller's market. If homes take longer than 4 to 6 months to sell, it’s probably in a buyer's market.

Should I contact a broker?

Go ahead and do so! For whatever may be said about brokers, they do provide a valuable service to the real estate market. Of course, your choice of the broker will ascertain whether you have a good experience or bad experience with one. This is a highly disorganized business and depends completely on personal relations and interaction.

This is what your broker can help you with :

Of course, you will have to pay your broker a pound of flesh for his services. There are no standard fees payable to brokers but it is known in the market that brokers charge about 2% of the transaction value (sometimes from both the buyer and the seller!).

So, if you are able to find a suitable house available for sale directly from the owner, which you feel is competitively priced, go for it and save your brokerage costs! ‘Directly from the owner’ implies somebody you know who knows somebody who wants to sell. A strong suggestion: don’t buy directly from an unknown seller. You could be the third, forth or fifth buyer of the same property!

How do I judge the competency of a broker?

This can be a very subjective decision in terms of the broker’s knowledge on the location, the kind of people residing in the area, availability of necessary facilities, etc. However, you can objectively judge a broker on his knowledge of regulatory aspects such as stamp duty, registration, the quality, reputation and projects of various builders, availability of loans from various lenders, etc. The best way is to ask him lots of questions and then get his answers verified from friends and other acquaintances.

Watch out for these tactics of the broker!

How do I find a good broker?

The best way to zero in on a broker is through referrals from friends, colleagues at work or relatives.

What do brokers normally charge?

There are no standard fees set for payment of brokerage. However, it is a well-accepted fact that brokers normally charge about 2% of the transaction value (sometimes from both, the buyer and the seller!). In case of leases and leave & licenses, about 2 months’ rent is charged as brokerage. Of course, for purchase, lease or leave & license transactions with larger values, brokerages are negotiable.

Fix the brokerage fee at the start!

Don’t wait for the deal to be finalized before doing so. You will give the broker a chance to hold you at ransom at the last stage when you are ready to close the deal!

What if I find a flat on sale from a builder? How do I check his reputation and reliability? Should I still go through a broker?

You needn’t go through a broker when you are dealing with a builder, especially one of repute. However, before you deal with the builder, check out the following:

Do builders charge a fee, too?

No. Builders don’t charge any fee or commission for sale of their flats.

What is the procedure of payment and taking possession of the flat from the builder?

The builder will show you the building plans and inform you about his sale rates per square foot. He will take you to the site for a personal visit. Normally, bookings are open from the time the development of the building begins. You will see only workers, a lot of loose earth, some skeletal structures and nothing else much.

If you are comfortable with the builder, agreeable to the site, sale rate and building plan you will be allotted a flat based on your choice. A suggestion: choose a flat with good ventilation, sunlight and facing the front side especially if the building has a garden.

He will give you an allotment letter on you paying him a booking amount of about 15% of your total cost.

The builder will prepare a payment schedule for you based on the progress of the construction. For instance, after taking the 15% booking amount from you, he will prepare a schedule wherein you pay another 25% on completion of the first plinth level, 25% more on completion of the second plinth level, 25% more on the building getting completely ready and the balance 10% on you taking possession of your flat.

If you have approached the builder at the building being in the advanced stage of completion, you will have to pay a higher booking amount on receiving your allotment letter.

He will then make out an agreement for sale, get it stamped by paying the relevant stamp duty, which is normally borne by the purchaser. After being stamped, the agreement is signed by both the purchaser and the builder. Within a month of signing, this agreement is registered with the Sub-registrar appointed by the State Government under the Indian Registration Act, 1908.

The agreement for sale must contain particulars such as liability of the promoter/builder to construct the building according to the plans and specifications approved by the local authority, possession date when the flat should be given to the purchaser, price to be paid by the purchaser, the intervals at which the installments for the full payment are to be made specifying stage of construction, the precise nature of the body to be constituted of the persons who would take the flats, details regarding the common areas and facilities specifying the percentage of undivided interest in the common areas and facilities appertaining to the apartment agreed to be sold, a statement of the use for which the apartment is intended.

The agreement for sale must also include copies of title certificate, a copy of the approved plans and specification of a list of fixtures and amenities including provisions for lifts to be provided.

In the sale agreement there should be a declaration /representation by the promoter/seller that he has not encumbered the property in any manner whatsoever and entered into any other agreement to sell/lease/license with any other party. It needs to be specified whether the property is vacant or in possession of any other party other than the seller.

The normal time taken for construction of an average Stilt + 7 storied building would range between 15 to 20 months. It is possible that the construction period may go up to 30 months if the building has more number of floors.

What do I look out for while site seeing for a home?

Your checklist for the locality, availability of facilities and environmental factors should include:

Your checklist for the building and the apartment including the interiors should include:

Should I give more importance to the locality or to the flat?

It is a fact that an average house in a posh locality is worth a lot more than a posh house in a down market locality.

Should I buy a new home from the builder or should I look for a home in the resale market?

Normally, locality plays an extremely important part in the choice of a home. And one may not find new construction in that locality. Hence one is stuck with buying a house on resale. Of course, buying a new home has advantages like you can request the builder to make specific changes in the interiors, you pay the builder in installments for property under construction and are not burdened with a big payment at one time, you can get a good bargain from the builder in case of a flat ready for sale but not purchased.

This is because builders are not investors in real estate and don’t normally hold on to the flats. Selling and reinvesting in a new project is much more profitable for them. However, while buying from builders take care regarding the escalation clause in the agreement terms.

I have the money at my disposal and am looking for my dream house. Should I buy a flat or a bungalow?

Naturally, you will want a bungalow if you want the very best. But you will have to live far away from the city and in most probability, away from your work place. This means commuting every day. Besides, maintaining a bungalow is extremely expensive - you will have to budget for small repairs, leakages and painting jobs every month. Also, bungalows may not be very safe - flats score on this count.

Of course, bungalows can be very personalized unlike flats, which are made on mass standardized basis.

Our step-by-step procedure till possession of a resale flat

We suggest

open a joint bank account with the seller and transfer the deposit amount in this account. Close the account when the deal is done. Alternatively, give the deposit to a mutually agreed upon lawyer till the deal is done. This ensures that the seller does not disappear with your deposit. The balance is payable till the time of completion of the sale.

The payment stages depend on the time mutually agreed upon between the two parties. If the parties want to make time the essence of contract, they can include that clause in the agreement for sale. The seller’s lawyer is usually responsible to prepare the draft of the Agreement for Sale. Confirm that titles of the house selected are clear [Refer to investigation of title deeds .

Check out the following before taking possession…

Do the following immediately after taking possession…

You are now a proud owner of a home!

I am a Non-Resident Indian (NRI). Can I get a loan for buying a home in India?

Yes, you certainly can get a loan. Procedures for obtaining a loan is largely the same as for a resident India with only the documentation aspect changing a little.

You will be required to submit copies of your work permit (if applicable), your visa, employment contract, latest salary slip and overseas bank statement of the past few months. You can repay the loan (the principal and the interest) through the normal banking channels using either a Non Resident (External) or a Non Resident (Ordinary) account.

However, Non-Resident Indians can obtain home loans from nationalized banks only.

Purchase of Home by NRI's in India

There will always be a net surplus of house hunters over houses available, especially in a country with a population that has crossed the 1 billion mark.

There are 4 good reasons for purchasing a house property with assistance from housing finance company

RBI has granted general permission to NRIs as well as PIOs (Notification FERA 201/99-RB dt 30.3.99) to acquire by way of purchase or inheritance and dispose of by way of sale, mortgage, lease, gift, settlement or otherwise any number of immovable properties, residential or commercial, situated in India, subject to

If a property, residential or commercial, acquired on or after 26.5.93 through foreign exchange, is sold after 3 years from the date of its acquisition or from the date of payment of final instalment, whichever is later, repatriation of the amount equivalent in foreign exchange paid for the acquisition is permissible with RBI's prior approval (form IPI-8 received within 90 days). The permission for repatriation may be granted for a maximum of 2 residential properties. It appears that no such restriction is prevalent for commercial properties.

OCBs will be permitted to repatriate net profit (up to 16%) arising from sale of such investment after the lock-in period of 3 years.

A foreign citizen of whatever origin, resident or otherwise, can purchase a property in India on non-repatriable basis for bonafide residential purpose with prior permission from RBI (form IPI-1). This stipulation is not applicable if the immovable property is taken on lease for a period not exceeding 5 years.

Repatriation

Any income (including rent on let-out house) earned on Indian assets of an NRI in India can now be repatriated only after appropriate tax has been paid thereon.
Following are the forms related with acquisition and sale of immovable property, prescribed by RBI. There are only 8 of them, but the following are in vogue :

Form Purpose

IPI-1 : To acquire and hold immovable property in India.

IPI-2 : To transfer or dispose of immovable property in India.

IPI-6 : Declaration in respect of properties held as on 1.1.74.

IPI-7 : Declaration of property purchased under the general Permission.

IPI-8 : Request for repatriation of the original investments in properties.

Property Outside India

Housing Loans

ADs may grant housing loans to NRIs without reference to RBI where the NRI is a principal borrower with resident close relative as a co-guarantor or the land is owned jointly by NRI borrower with the resident close relative. In such cases the payment of margin money and repayment of the loan instalments should be made by the NRI borrower. The loans can also be given to residents with NRI as a co-guarantor.

RBI has delegated powers to ADs and certain financial institutions like HDFC, LIC Housing Finance, etc., to grant loans to NRIs holding Indian passports for the purpose of acquisition of flats/houses in India against collateral of the house. Repayment of the loan, interest and all related charges should be made by remittances from abroad through normal banking channels or out of funds in the NRE/FCNR/NRO/NRNR accounts. The loan should be fully secured by creating equitable mortgage of the property and if necessary, lien on borrower's other assets in India including NRE/FCNR deposits.

If the seed money and also the payments of interest and repayment of loan is made out of direct remittances from abroad or through NRE/FCNR accounts, the repatriation right is protected.

If the house/flat is rented out, the entire rental income, even if it is more than the prescribed instalment, should be adjusted towards repayment of the loan. If the rental income is less than the prescribed instalment, the borrower should remit the amount to the extent of the shortfall from abroad or pay the difference of his/her NRE/FCNR/ NRO/NRNR account in India.

This facility will, however, not be available to OCBs. Acquisition of the property by PIOs will be subject to RBI approval u/s 31 of FERA.

Gift of Immovable Property

RBI has granted general permission to NRIs to transfer, by way of gift, immovable property held by them in India provided it is effected between relatives or it is in favour of a charitable trust. It may be noted that the value of the gift for stamp duty is not to be taken at the market value but in accordance with valuation norms of the Stamp Office of respective states.

Case Studies

In this section, we present some typical situations faced by people. The queries

Purchase through Power of Attorney

Q: I have purchased under Power of Attorney a flat of GDA in Vaishali in February 94. Its yearly instalment of Rs. 14,000 consists of Rs. 8,000 interest and Rs. 6,000 towards part payment of the capital borrowed. The receipt of GDA would be in the name of the original allotee. Would I be entitled to set off the interest paid by me of Rs. 8,000 against my other income? Can I claim tax rebate of Rs. 6,000?
A: The payments made by you as a PA holder are on behalf of the original allotee and therefore, you cannot claim both these benefits. Even the original allotee cannot claim these benefits because he has not incurred the costs and the contribution has not been made out of his income chargeable to tax.

Income from House Property

Q: I own the present house where I am residing. I am considering buying yet another flat, larger in size through HDFC loan. I have been given to understand that this will add to my already heavy tax burden. Some notional income will be construed as my income. This appears unreasonable, but is it true?
A: Annual value of self-occupied property is taken as 'nil'. Where the annual value is taken as 'nil', no deductions on account of repairs, insurance premium and ground rent will be allowed except deduction in respect of interest paid or payable on funds borrowed.

Where there are more than one such self-occupied properties, only one property, as per the choice of the assessee can be taken as self-occupied at nil value and all the others as let out.

The owner of a house property, inclusive of the appurtenant land, is taxed on the 'annual value' of the property.

This annual value is dependent on i) municipal ratable value ii) actual rent if the property is let out and iii) fair rent and standard rent. Some expenses like municipal taxes, insurance premium, etc. are allowed.

Interest on borrowed capital from whatever sources, for acquiring, constructing, reconstructing or repairing the self-occupied property is deductible with a ceiling of Rs. 30,000. This ceiling is Rs. 100,000 for loans taken after 1.4.99 provided the acquisition or construction of the property is completed before 1.4.2003. This interest can be set off against income from any source, including salary.

There is no ceiling where the annual value is not nil. However, if after all the permissible deductions are claimed, the income turns out to be a loss, it cannot be set off and is required to be ignored.

You are entitled to claim rebate u/s 88. Payments towards cost of construction or acquisition of a residential house property, qualify for rebate u/s 88 with a ceiling of Rs. 10,000 provided such payments are instalments or part payments of loans from approved sources.

If you take a loan to acquire, construct, repair, renew or reconstruct any house property (including residential), from any source, the interest is deductible. On the other hand, the rebate u/s 88 can be claimed only if the loan is taken from some certain specified sources (not any source) and is for purchase or construction (not repair, renew or reconstruct) of only a residential house (not any house).

Is there any sense in having these minor differences in parallel provisions?

Cancellation Of Contract by seller

Q:I had given Rs. 25,000 as earnest money for purchasing a residential flat. Now, after two and a half years of prolonged litigation, there was a compromise and as per the consent decree, I have received back my principal of Rs. 25,000 along with Rs. 15,000 as penalty or compensation for cancellation of the contract and Rs. 5,000 as interest. Discuss taxability of these amounts.
A: When any earnest money or advance is paid by the purchaser, both the seller and the buyer gain legal rights for due performance of contract. If the purchaser commits a breach of agreement, the earnest money can be forfeited by the seller. On the other hand, if the seller is at default, the purchaser has a right to insist on due performance. You have received back the earnest money paid. This is a capital receipt. The interest of Rs. 5,000 however, is a revenue receipt and is chargeable to tax.

In respect of the additional compensation of Rs. 15,000, you may be guided by the ratio of CIT v Abbasbhoy A. Dehgamwalla (1991) 59Taxman498 (Bom) as well as CIT v Sterling Investment Corporation. The breach of contract gives the purchaser merely a right to sue and any compensation received against this right cannot be treated as a consideration for the transfer of a capital asset.

A conflicting view has been expressed by CIT v Vijay Flexible Containers (Bom). It was held that the right acquired under the agreement is a capital asset and the compensation received on its extinguishment is chargeable to capital gains.

The legislation is so ambiguous that even the courts are unable to arrive at proper interpretation. I submit that when there are conflicting opinions, CBDT should come out with a clarification. Otherwise, the benefit of doubt should be given to the assessee.

In yet another case of IT v Gulabchand, Allahabad High Court considered it as casual income, exempt upto Rs. 5,000 in the aggregate.

Cancellation Of Contract By Purchaser

Q: I had received Rs. 40,000 as earnest money from a prospective purchaser of my flat. Now, after one year of prolonged litigation, there was a compromise and as per the consent decree, I have returned Rs. 15,000 and retained Rs. 25,000 as compensation for cancellation. Kindly let me know taxability of this amount.
A: When the earnest money was received, it was definitely not your income. This amount cannot change its character only because you have decided to confiscate it for the non-performance of the buyer. Since no transfer of any capital asset has actually taken place, there is no capital gain. This means that the entire forfeited amount escapes the tax net, but only in the present dimension.

When the flat is eventually sold, Sec. 51 stipulates that in computing cost of acquisition, any advance or other money received and forfeited by the assessee is to be deducted from the cost or the written down or fair market value, for which the asset was acquired.

House Loan Taken by Deceased Father

Q: Immediately after purchasing an ownership flat, my father expired. He had taken HDFC loan and was well aware of the tax provisions. My mother and myself are staying in the flat. I have been paying the Equated Monthly Instalments (EMI) which consist of part interest and part loan repayment. I have been receiving conflicting opinions regarding the deductibility of the interest element and the rebate on loan repayment. Can you give your opinion?
A: It is not you but your father who had borrowed the funds from HDFC. The rebates and deductions are not available to those who have not borrowed the funds directly and these facilities are not available to the successor to the property. This was the view taken by the Gujarat High Court in respect of CIT v Rajkot Seeds Oil & Bullion Merchant Association Ltd. (1975) 101ITR748.

This is indeed very sad. I do not think that it was the intention of the legislation to deprive the inheritor of the property of these concessions.

Flat Given on Lease to Employer

Q: I am an executive in a company and am entitled to the various managerial perks. My basic salary and D.A. for the purpose of housing perks is Rs. 10,000. I have purchased a residential flat at Borivli with a loan from a bank. My company has agreed to take the flat on lease from me and give it back to me for my residential purpose as an employee. The company has agreed to pay me a rent of Rs. 8,000 per month, since the flat belongs to me. Now, my queries :
1. Do I have to pay tax on the rent received?
2. Can I treat the lease rental as perquisites?
3. Can I claim deduction of the bank interest?
4. What about tax rebate on repayments of capital?
A: You are landlord of the residential flat in which you are staying as an executive of the company that is your tenant. This is complicated.

I do not have good news for you. The answers to all your questions are in the affirmative. In other words, you have to pay tax on the rent received by you as income from house property. It is also necessary to pay tax on the housing perks. The perquisite value for this rent-free unfurnished residential house which is situated in Mumbai is 10% of salary plus excess of fair rent over 60% of salary. The fair rent is obviously Rs. 8,000. Otherwise, your company would not have agreed to pay the rent.

The value of your perks is :

Installment Amount 10% of Rs. 10,000 Rs. 1,000 Fair rent Rs. 8,000 60% of salary Rs. 6,000 Rs. 2,000 Total Value of Perks Rs. 3,000 Rent Received Rs. 8,000 Tax Payable on Rs. 11,000

Is this double taxation? Definitely not. You are getting double benefit from the same flat.

In the case of deduction of interest on loan and rebate on repayment of loan instalments, you are entitled to both of them. On self-occupied property, the limit on deduction of interest has been raised by FA99 from Rs. 30,000 to Rs. 75,000 under certain conditions. There is no limit if the flat is let out. Is your flat self-occupied or let-out? Of course it is let-out. You cannot pay rent to yourself. The Sec. 88 rebate is possible both on self-occupied and let out flats.

Loan to Repay Loan

Q: At present, I am residing in a company-owned flat in Mumbai. I have located a good residential bungalow at Lonavla and desire to purchase it in order to provide for my post-retirement residence. The seller desires immediate down payment. I can get a cheap loan (only 6% interest) from my employer, but being a public sector organisation, the processing for sanction of housing loan takes well over six months. I can take a clear loan (24% interest) from a money lender. But can I take this loan, purchase the house and reimburse him after the sanction from my employer comes through?
A: Yes, you can but you should not. You will lose all the tax benefits. Instalments or part repayment of loans borrowed from any eligible source, enjoys tax rebate u/s 88 upto Rs. 10,000. Loan taken from the money lender does not qualify for the rebate. Similarly, the loan taken from your employer to repay the loan taken from the money lender does not attract rebate. However, loan taken from a permissible source to extinguish loan from another permissible source, will definitely qualify for rebate.

By the time the sanction from your employer is received, you will be already possessing a house and therefore the sanction may lapse.

Sec. 24 allows deduction of interest on borrowed capital. Here, there is no restriction on the source of the borrowed capital. Interest paid even to the money lender upto Rs. 75,000 (raised from Rs. 30,000 by FA99) can be deducted from your income but tax rebate on repayments is not possible.

Yes, this is indeed very confusing. At the time of amending the Act, it is the primary duty of the authors to ensure that there is consistency of conception within different sections. It is evident that this aspect is handled casually, resulting in the Act becoming complex and complicated. Complications in legislation result in easily avoidable large-scale litigations and rampant corruption.

House under Construction

Q: I am already an owner of a residential flat in a cooperative society. Its current market value can easily be around Rs. 50 lakhs. I have also purchased a bigger house, costing about Rs. 75 lakhs. This is still under construction and have paid about Rs. 20 lakhs so far towards the instalments. I am given to understand that only one house per individual enjoys freedom from tax. Am I supposed to pay wealth tax on Rs. 75 lakhs or Rs. 20 lakhs?
A: Since your 2nd 'house' is not complete or habitable, it cannot be considered as a house. The instalment paid are towards the right to acquire a housing property and not a house itself. This new asset is not treated as a taxable asset by Sec. 2(ea) of the WTA. No wealth tax is payable either on Rs. 20 lakhs or Rs. 75 lakhs. It becomes eligible to wealth tax only when the property is complete and its ownership passes on to you.

House and Wealth Tax

Q: When I was promoted as general manager in my company, I got a fully-furnished residential flat as a perquisite. I gave my bungalow on rent to a close friend. This bungalow, with its 3 outhouses was purchased 2 years ago for Rs. 35 lakhs. I was shocked to find that my friend was using the main portion as his office and the outhouses as laboratories for manufacturing chemicals. Now that my bungalow is neither self-occupied nor residential, what is my wealth tax liability?
A: FA93 has inserted a new clause (vi) u/s 5 of the WTA under which from AY 94-95 onwards, one house or part of a house belonging to an individual or an HUF will be exempt from wealth tax, irrespective of its value.

The words used are - 'a house or part of a house'. There is no condition that such a house should be residential or self-occupied. Therefore, this house is free from wealth tax unless you own yet another house anywhere in India. Even in that case, one of the houses as chosen by you will be free from wealth tax. Similarly, any business and commercial premises are productive assets and therefore are free from wealth tax.