Tax breakdown for property purchases
If you are looking to buy property or have already invested in one, you will know that there are multiple taxes to be paid to the government at various instances. With the roll-out of goods and services tax (GST), all taxes applicable previously (such as value-added tax (VAT) and service tax) have been subsumed under this unified tax system.
The overall property costs are broadly divided into two components – one paid to the builder or seller, and the statutory and legal costs paid to the government. While the former roughly comprises 80-85% of the overall property cost, the remaining 15-20% go as taxes to the government coffers. Are the taxes same for both under-construction and ready-to-move-in properties? The answer is no.
TAXES FOR PROPERTIES UNDER CONSTRUCTION Statutory and legal costs for under-construction properties range from 15- 20%, depending on the state in question, and broadly include stamp duty, registration and goods and services tax (GST).
STAMP DUTY
Stamp duty is paid on the sale agreement to render a property transaction legal, and it varies from state to state. As such, stamp duty accounts for around 5-7% to the total property acquisition cost. Most states offer a rebate of 1-2% to women if a property is registered in their name.
REGISTRATION CHARGES
To register a sale agreement with a government-approved registration officer, buyers have to pay a registration fee of 1% on the total cost of the property at the district sub-registrar’s office.
GST
Under the new tax regime, under-construction properties are taxed at 12% on a property’s base cost since 2017. TAX DEDUCTED AT SOURCE TDS is charged at 1%. It is deducted by the buyer at time of payment to seller. Thereafter, the builder needs to pay this amount to the Central government online or via any authorised bank within seven days from the end of the month in which such TDS is deducted.
FOR READY-TO-MOVE-IN PROPERTIES
One of the major attractions of ready-tomove-in properties is that they are exempt from GST. Buyers need to only pay the stamp duty and registration charges as taxes, which comprise 7-8% of the total property cost.
The seller quotes a lump sum amount and the buyer also pays the government’s statutory charges during registration. Thus, ready-to-move-in properties offer a good value proposition for homebuyers, who not only get to see the property they are buying but can also move in immediately and save on rentals.
TO TOP IT OFF-PROPERTY TAX Another tax that a buyer needs to pay after moving into his or her new home is the annual property tax. The tax amount varies not only from state to state but also according to micro markets in a city. In case there’s an income generated by a property, it is liable to be taxed. However, if you the property is self-occupied, then only the annual property tax applies.
RELIEF FOR AFFORDABLE HOUSING
The government has extended a GST benefit to its Credit Linked Subsidy Scheme (CLSS) for EWS, LIG, MIG-I and MIG-II homebuyers. Besides getting interest subsidy, such buyers can also avail of a lower concessional GST rate of 8%. In fact, to boost sales in this segment, the government has urged developers to refrain from charging any GST from homebuyers in this segment because the effective 8% GST rate in affordable housing can be adjusted against their input credit, should they opt for this.