Home buying process- Taxes and Duties

October 8th, 2018

For a new home buyer, a home is not just a place to live but it involves years of hard work, savings and planning. These days more Indians are looking forward to buying their own houses rather than living in rented ones which increased the demand for more and more residential spaces. According to the Economic Survey 2017-18, the figures show a steep decline in the scenario where only 28% of urban India lives in rented houses as compared to 54% in 1961.

The real estate market currently is booming, making the investment in this sector a beneficial step for home buyers.  With the advancements in technology and infrastructure, developers are providing numerous choices to the buyers.

Along with these benefits from the developer, the government of India has also made the taxation process easier for the buyers by making some changes in the economic policies and introducing GST and RERA.  The taxes and duties that a new home buyer has to pay to the government include:

Stamp Duty

The most important fee to be paid to the state government is the stamp duty only after which the home buyer can attain full ownership of the immovable property. Without obtaining the stamp on the sale consideration and completing the registration process the transfer of the ownership of the immovable property is not legal in the court of law. The Stamp Duty is paid at the time of the transfer of property.

Only after paying off the complete stamp duty that ranges approximately 5% to 10% of the property value, the transfer of the ownership of property can take place. The amount of the stamp duty differs from state to state; in Uttarakhand, it is currently 5%. The females get a certain rebate on the stamp duty to purchase a property. This rebate is governed by the rules levied by the state government which are flexible and liable to changes.

Registration Fee

Another fee is the registration fee charged by the state government for creating a registration of the sale deed. It ensures the change of legal ownership from one party to another and the fee is paid by the buyer which changes as per the rules of the state government.

Goods and Service Tax (GST)

The most recent tax structure implemented by the Government of India is the GST which is payable to the central government and is the replacement of the previous taxes- Service tax and Value Added Tax (VAT). VAT was not charged in real estate sector and the home buyers were supposed to pay only the service tax which is now replaced with the Goods and Service Tax.

The GST is applicable to the sales consideration which is implemented by the central government. For the purchase of immovable under construction property, the GST has been fixed at 12%. In the case of the ready-to-move-in and completed projects that have received the Occupancy Certificate or the Completion Certificate (OC/CC), the GST is not applicable. However, if the Occupancy or the Completion is pending the buyer is obliged to pay the GST.

Tax Deduction at Source (TDS)

For the property the value of which exceeds Rs 50 lakh (excluding GST, Stamp Duty, and Registration Fee), the buyer needs to deduct 1% of the consideration as TDS and pay it to the Government of India. The remaining 99% of the property value is to be paid to the real estate developer.

The TDS should not be confused as an extra tax burden at the end of the buyer but is only a bifurcation of the total property value; the 1% is paid to the government and the remaining 99% is paid to the seller.

To sum up, every home buyer needs to pay a certain amount to the state or central government as taxes or fee; however, the Government of India has simplified the process of home buying by subsiding Service Tax and VAT in the form of GST. To provide comfort to the buyers the government has also created a smooth channel by implementing RERA, in accordance to which the real estate developers have to register themselves with the government to prove their authenticity and credibility.

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