Every individual aims for buying his or her first house as early as possible in their life span. Afterall, being an owner of a property (flat, floor, land, shop, independent house, etc.) is a matter of pride. There are various costs that a buyer needs to budget while planning to buy a property. One of them is the set of taxes that a buyer needs to pay. A saving grace here, however, is that the tax amount(s) may not be as exorbitantly high as several other costs like cost of property, brokerage, etc.
In this post, let us take a look at several types of taxes that a buyer is required to pay during the property buying process. There may be some type of taxes that the buyer of property needs to pay regularly even after becoming its owner.
Note: Matters related to tax (direct or indirect) including that on property fall under the purview of the Income Tax Act, 1961 and its amendments.
In simple terms, Tax is a mandatory charge or fee that is levied by the government on:
- the income or profit of an individual/business or
- added to the price of goods or services or transactions
In relation to buying a property, taxes like TDS, GST, stamp duty and property tax are important categories that a buyer needs to know properly at all times.
Disclaimer: You must consult a property tax lawyer to make right tax calculations and payments. Any slippages with respect to tax matters are viewed as tax evasion by the taxation authorities and attracts fines and penalties.
Let us now understand each one of them individually.
What is Tax Deducted at Source (TDS)?
TDS is a type of tax that is deducted by the buyer at the rate of 1 percent of property’s declared value and paid to the tax authority. It is mandatory for a buyer to deduct TDS if the value of the property is Rs. 50 Lakhs or above. Also, once the buyer deducts the TDS, it is mandatory to deposit the TDS amount with tax authority within 30 days of deduction. Once deposited, buyer needs to give the receipt/challan to the seller of the property as a proof of payment.
What is stamp duty and registration fee?
As explained in the previous post, stamp duty is the tax levied by the state government that acts as a proof of property sale and purchase transaction. The rate of stamp duty may vary from one state to the another. However, usually the stamp duty rates range between 5 percent to 7 percent of the declared property value.
The property registration fee, on the other hand, is a charge levied by the state government for maintaining the records of property document – conveyance deed or sale deed. This fee also may vary from one state to another. For more details, you can read our exclusive blog stamp duty and registration fee.
What is property tax?
This is a type of tax that is paid by the owner of a property on annual basis to the local municipal corporation where the immovable property is located. Property tax is calculated on the basis of the following parameters:
- area of the property
- construction – old, new, kuccha or pucca
- locality – rural, semi-urban or urban
- age of the owner – adult or senior citizen
- gender – male or female
The property tax paid by the owner is utilised by the municipal corporation for providing civic services like maintenance of roads, parks, sewerage systems, sanitation, waste management, electrification of public spaces, etc.
What is Goods and Services Tax (GST)?
GST is the newest form of tax that has been introduced by the Government of India in 2017. Besides other categories, real estate (only under-construction properties) was also included as part of the taxation law. Here, a buyer of an under-construction property is required to pay GST on the total value of the property to the builder.
The GST rates are as below and may be subject to change from time to time:
- 1 percent of property value when bought under affordable housing scheme
- A property is considered under affordable housing scheme if the value of property is upto Rs 45 lakhs with carpet area of upto 60 square metres.
- 5 percent of property value when bought under non-affordable housing scheme
An important point to note here is that buyers who have purchased flats or apartments especially in completed projects are not required to GST to the builder.
Why should I consult a professional property tax consultant ?
Filing incorrect taxes is considered as tax evasion by the tax authorities. Dealing with the tax man is not a pleasant experience. Rather it is a very stressful one and no buyer would want to land up in such a situation. Hence, role of a qualified property tax lawyer becomes all the more important. The property tax lawyer advises you with the correct prevailing tax rates applicable to your property transaction. Not only this, the property tax lawyer also can help in computation and filing of different taxes with respective competent authorities. This not only smoothens the entire process but also ensures that the buyer or owner of property remains tax compliant thereby minimising the risks of getting tax evasion or penalty notices from the tax authorities. Thus, it only becomes prudent to consult a property tax lawyer at every stage of your property transaction – before, during and post completion of the transaction.