Table of Contents
A home is more than just a place—it’s a symbol of comfort, security, and achievement, where memories are made, and a sense of belonging takes root. But behind the journey from searching for a property to finally calling it your own, taxes play a crucial role at every step.
Whether you’re buying or selling a house, different taxes come into play—stamp duty, registration charges, capital gains tax, and more. It might sound complicated, but don’t worry; this guide breaks it all down in a simple way. You will find all the necessary information here, ensuring there are no surprises throughout the process.
Taxes During Property Purchase
Stamp Duty (SD)
- What is stamp duty? When a property is purchased, stamp duty must be paid to the government for its legal registration and documentation. This tax officially records the property under the new owner’s name, confirming legal ownership. It ensures that the transaction is recognised by law, reducing the risk of disputes or ownership claims.
- Applicability: Stamp Duty in India is applicable to all property transactions, including residential and commercial properties, whether under construction or ready-to-move-in.
- Who pays? The buyer is responsible for paying stamp duty to the state government.
- Rates: The rates for registration vary from state to state, for example, if you buy a flat in Karnataka, you will have to pay a duty of 2% under 20 Lakh purchase, and if the purchase value is between 21 – 45 Lakh you have to pay 3% as the cost as stamp duty if the value of the property exceeds 45 Lakhs then you have to pay 5% stamp duty.
- Payment Process: There are various methods by which you can pay this tax. You can pay via E-stamping, which is the quickest and safest. You can also opt for demand draft or online banking, but note that this has to be done before registering your property. Some states provide online portals for stamp duty payment, while others require payment at banks or sub-registrar’s offices.
While paying stamp duty, buyers also need to account for the property registration fee in India, which varies by state and is essential for completing the registration process. Checking the state’s official website or consulting local authorities ensures a smooth process.
Goods & Services Tax (GST)
- What is GST? GST is a tax levied on the supply of goods and services, including real estate transactions. It applies to under-construction properties but not to completed or ready-to-move-in houses. By paying GST, the cost of construction is standardised and made transparent, ensuring there are no hidden charges.
- Who pays? The person buying the house is responsible for paying the GST, it is part of the property cost.
- Rates: Residential properties in India are charged with 5% GST, and commercial properties are charged with 12% GST. If you are purchasing a house under Affordable Housing Projects – Pradhan Mantri Awas Yojana (PMAY), i.e. the overall cost of the house is under 45 lakhs, then you only need to pay 1% GST.
- Payment Process: GST is paid directly as part of the total purchase cost to the developer or builder. The developer then deposits the GST to the government.
Tax Deducted at Source (TDS)
- What is TDS? TDS (Tax Deducted at Source) is a tax deduction mechanism aimed at promoting transparency in property transactions. It is deducted when the buyer makes payment for the property and subsequently deposited with the government. This ensures the seller declares the correct value of the property and pays the appropriate tax.
- Applicability: According to Section 194-IA, TDS is applicable only if the property you are buying costs more than ₹50 lakh.
- Who pays? The buyer is responsible for deducting TDS before making the payment to the seller.
- Rate: If the property exceeds the value of 50 lakhs, then 1% TDS has to be deducted by the buyer. TDS is charged only on the base property charge, not on the GST-included charge.
- Process: The buyer must file a TDS return in the form 26QB for the sale of the property. This will be a one-time return for each property transaction. Once the buyer has filed the TDS, he must provide the seller with the 16B certificate, which serves as proof of TDS deduction.
Taxes During Property Ownership
Property Tax
Property tax in India is levied by the government; you can consider this as rent paid to the government for using the basic civic amenities, such as sewers, roads, and electricity. This tax is calculated based on various aspects such as size, locality, and usage.
Calculation Methods: There are three major systems through which the calculation of these taxes is done.
- Capital Value System (CVS): The property’s market value is determined by the stamp duty department, considering factors like location, size, and current market trends. The department calculates a price based on these parameters.
- Annual Rental Value System (RVS): In the Annual Rental Value System (RVS), the tax is calculated based on the potential rental income the property could generate annually, regardless of whether it is actually rented out. To estimate this, research the rent prices of similar properties in the area, factoring in the property’s size, amenities, and location. The estimated monthly rental value is then multiplied by 12 to get the annual rental value. This estimated value helps calculate the tax liability for the property.
- Unit Area Value System (UAS): In the Unit Area Value System (UAS), the per-unit price for the built-up area is determined by the local municipal authority, considering factors like location, infrastructure, and demand. To calculate the tax, multiply the built-up area by the per-unit value specific to the locality set by the authority.
Payment Frequency: This is paid either annually or semi-annually, depending on the authority of the state.
Penalty for Non-Payment: When you fail to pay tax on time, you have to pay a fine or penalties ranging between 5% – 20%. If this is repeated more than once, you can also get a legal notice from the state.
Income Tax on Rental Income
-
- Applicability: When you get any income using any of your housing property, it is liable for taxation under the “Income from House Property.” The income tax on rental income depends on the individual’s applicable income tax slab after applying deductions.
- Deductions:
-
- There is a standard deduction of 30% for maintenance under Section 24 of the Income Tax Act. If the owner is paying the municipal taxes, then that is deducted.
- If you have taken a home loan to purchase the rented property, then the interest paid on the loan is deductible.
Taxes During Property Sale
Capital Gains Tax
When you sell any property in India, be it residential or commercial, you have to pay taxes and charges for it. They are of two types, and it varies on the basis of time.
- Short-term Capital Gains (STCG): When you sell any property within the timeframe of two years, then the gains are taxed according to your income slab.
- Long-term Capital Gains (LTCG): When the property is sold after 2 years, then the LTCG is taxed at 12.5% according to the latest tax provision. The indexation was removed in 2023, so the sale of any long-term asset will be taxed at 12.5%.
Conclusion
Property tax in India may seem complicated at first, but understanding them is very important for making smart decisions when buying, owning, or selling property. By knowing about taxes, you can avoid unexpected costs and make better financial choices. With some planning and the right knowledge, you can save money and feel more confident in your property-owning journey.
Frequently Asked Questions
- As a first-time homebuyer, do I get any tax benefits in India? If you are a first-time homebuyer, then you can claim deductions on your home loan and can reduce your taxable income under Sections 80EE and 80EEA.
- How can NRIs manage property tax in India?
- Do I have to pay taxes if I inherit a property in India?
NRIs are required to pay property tax and income tax on rental income. Also, capital gains tax when selling a property in India. The best way to navigate these taxes is to consult a tax consultant.
No. You do not have to pay any inheritance tax. However, if you decide to sell the property, then you have to pay the capital gain tax.
Sources
