The purchase of a property is definitely everybody’s dream. In a purchase and sales transaction, there are various kinds of taxes that are employed. While buying a property, a buyer may be required to furnish four main types of taxes named as Stamp duty charges, VAT, Service tax, and registration charges. With the introduction of GST (Goods and Services Tax) in the year 2017, service tax and VAT had been removed and nationwide property tax was imposed.

The overall price of the property can be classified into two main components. The first component comprises the amount that is paid to the builder or seller and the second component consists of the statutory and legal cost. In other words, it can be said that 80-85% of the property cost is paid to the builder or seller while 15-20% of the cost goes to the government as property tax. The property tax is payable for under-construction properties and the ready to move in properties varies.

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When does the property tax payment start?

Property tax is the amount that is paid by the landowner to the municipal corporation or the local government for his/her are. The property tax must be paid every year. Property, office buildings, and residential homes that are rented out to third parties are considered as real estate assets.

Property tax is charged by the government on all tangible real estate that an individual owns. These real estate assets could include residential homes, offices buildings, and premises rented out to third parties

What are the taxes that I need to pay before buying a property?

As already stated above, the property tax that is payable on an under-construction property and the ready to move in property varies. The statutorily and legally charged property tax on the under-construction properties falls in a range of 15-20% depending on the state in which the property is situated. The various property taxes payable can also be broken down as stamp duty charges, registration charges, and Goods and Services Tax (GST).

On the other hand, the ready-to-move-in properties are exempted from paying GST and the buyers are only required to furnish stamp duty and registration charges which come up to 7-8% of the total price of the property. Thus it is beneficial to move into such a property as you would be able to see the property before making the purchase and can also save on expenses such as rental. You may also be able to move in quickly as well.  The different property taxes borne by the buyer of the property for the purchase includes the following:

  • Stamp duty charges:

The stamp duty is imposed by the State governments and may vary from state to state. It is important to pay the stamp duty in order to make the sales transaction legally binding on both the parties of the contract. The stamp duty charges may come up to 5-7% of the total sales price of the property or the total market value of the property (whichever is higher) is considered for the purpose of the Stamp duty charge. Women are also provided a rebate of 1-2% if the property is registered in their name.

  • Registration Charges:

Registration of the documents showing the transfer of the property needs to be made in order to make it legally binding on the parties according to Section 17 of the Indian Registration Act 1908. The buyer in order to register the sales transaction is required to furnish an amount of 1% of the total cost of purchasing the property with the registration office or at the district sub-registrar’s office.

  • Good and Services Tax (GST)

Since land is an appreciable capital property, it is charged under the Good and Services Tax. However, the ready to move in flats are not required to make the payment of GST. The construction properties are generally charged with a tax of 12-18% on the property’s base value.

  • Tax Deduction at Source (TDS)

According to section 194 IA of the Income Tax Act, 1961, it has been made mandatory that all buyers of a sales transaction to deduct 1% Tax at the time the sales transaction is being carried out. It is deducted at the time of payment to the seller by the buyer. The buyer is then responsible to make the deposit of the same to the government account through an authorized bank within a period of 30 days from the month in which deducting of TDS is done along with the Form 26QB and a statement in accordance with Rule 30(2A) of the Income Tax Rules.

How much tax do I pay on the sale of property in India?

On the sale of a property, the seller is required to make the capital gain tax on the capital gain he earns from the sale of a capital asset. Capital gain tax can be imposed on a short-term basis or long-term basis. The Capital Gain is imposed on a short term basis if the property is held for less than 24 months. The short term capital gain can be calculated in the following manner:

The capital gain received on the sale of the property is added to the total income of the person and is then deducted based on the income slab it falls under. On the other hand, the seller becomes liable to pay long term tax benefits if he holds the property for a period of more than 24 months.

The formula for the long-term capital gain is calculated in a similar way however a cost called ‘Index Cost of Improvement’ or Indexed Cost of Acquisition” is deducted from the sales price of the property. The long term capital gain is calculated in the following manner:

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What are the current rates for the different property taxes that need to be paid?

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You are also taxed for the income earned by you from the property under the head ‘income from other sources’. The short term capital gain is applicable based on the income slab you fall under in the particular financial year after adding the Net Short Term Capital Gain to your total income.

How are property taxes paid when buying a home?

Earlier payment of the property tax may have been an inconvenient process but now, the payment can be made through online sources in the following manner:

  • The person is required to log into the official website of the Municipal Corporation in whose jurisdiction the property falls.
  • Then the person is required to select the tab depicting the Property Tax and then navigate to the payment option.
  • The buyer may be required after this to select the forms based on their property types based on the category the property falls.
  • Then the person is required to select the assessment year. Assessment Year is the year in which the property tax needs to be paid.
  • After this, the buyer may be required to furnish the identification number of the property along with all the relevant documents of the property.
  • After providing all the correct information on the property, they may be required to choose the payment option and make payment. After this, ensure to collect challan for future references.

Conclusion

Summing up, it is to be stated that the taxes imposed on the property vary from state to state and on the type of property you purchase. After the introduction of GST in the year 2017, VAT and Service taxes have been abolished. A unified amount is charged as GST all around India. Apart from the buyer of the property, the seller is also required to furnish Capital Gain Tax on the capital gain he receives from the property.

The imposition and exemption available on the Capital Gain Tax can be categorized as long term capital gain and short term capital gain. The payment of the taxes can be made online by visiting the official website of the authorized municipal authority.