Property Taxes to be paid while buying it

In this section, we are going to discuss different property taxes to be paid while buying an under-construction property and ready-to-move-in property.

Do you know what the laws say about investing in a property? After the Goods and Services Tax (GST) was put into place, the way taxes are paid when buying a home changed. All indirect taxes, such as VAT, Service Tax, and other indirect taxes, have been replaced by a single, unified tax system (GST) that applies to all properties in the country that are under construction. Even though registration and stamp duty is the most well-known taxes, there are more. Read on to learn more about all the property taxes issues that come up when you buy a home.

Different taxes involve in under-construction and ready-to-move-in properties

Goods and Services Tax (GST)

Under the new unified tax system that the Central Government put in place, the first tax on units that were under construction was 18 percent. The government has also added a rule that lets developers deduct the value of the land from the total amount they charge. This means that the effective GST rate on these units is 12 percent. In February 2019, the government took a second look at the tax rate on real estate and cut it to 5% for units that are under construction and 1% for affordable homes.

Note that in addition to GST, stamp duty and registration fees are charged when you buy a unit that is under construction. These are State levies.

Ready-to-move-in properties

Note: All ready-to-move-in homes in the whole country are not subject to GST. They’ll be taxed the same way as before. Read on to learn more about all the property tax factors that come into play when you buy a property that is ready to move into.

Tax Deduction at Source (TDS)

Update: The government changed section 194-IA of the Income Tax Act to include all residential society-based charges like club membership fees, car parking fees, electricity or water facility fees, maintenance fees, advance fees, or any other similar charges that are part of the transfer of immovable property. Since September 1, 2019, if the value of the property is more than Rs 50 lakh, TDS is charged at 1%.

The Finance Act of 2013 added a new section 194A to the Income Tax Act of 1961. This section is where TDS was first put into place. When a person sells something, this tax takes out a certain percentage of the amount. According to this section, anyone who buys a property, other than agricultural land, must pay the TDS to the seller as payment for the transfer of immovable property. The TDS must be sent in under the name of the property seller.

Registration fee: As part of the registration process, the Sale documents are filed with a registering officer. Section 17 of the Indian Registration Act of 1908 says that all documents related to the transfer, sale, or lease of a property must be registered. The law says that if the property papers are not properly registered, the owners can’t bring any case to court. The document is the final agreement that the buyer and seller sign. After that, the buyer is the legal owner of the property. This document protects the buyer if a transaction or fraud is said to have happened. The registration fee is usually 1% of the “agreement value,” but it can be different from one state to the next. The local government decides how much of a property is registered.

Stamp duty: The stamp is the government’s way of collecting income and sales tax. It is usually about 5% of the market value of a property. But in some states, it can be more. Before registering the property, the buyer has to pay this amount at a certain bank or collection center. If they don’t, they may have to pay a fine. This fee is based on the government’s Ready Reckoner rates, and if it isn’t paid, the property won’t be recognized as legal. This tax is paid on every transaction, even when documents are swapped or instruments are signed.

Since these property taxes make up a big part of the total value of a property, they make it hard for a buyer to decide to buy and put off the decision. Taxes need to be made fairer so that the average person can achieve his or her dream of owning a home.

Disclaimer: The opinions shown above are mainly for informational reasons and are based on market research. Deal Acres is not responsible for any actions made as a result of relying on the provided material and makes no representations as to its accuracy, completeness, or reliability.