What are the tax implications on your Real Estate purchases?
Property acquisition is often a buyer's fantasy come true. Most individuals aspire to make money and buy a property that they can pass down to their children and grandchildren. Unfortunately, in some cases, buyers who invest their hard-earned money in purchasing property find themselves in a difficult situation. While everyone is aware that they must pay taxes when selling property, few are aware that investing in a house may require the buyer to pay tax as well. As a result, you must consider some key factors when purchasing a property.
Real estate investment is not only a requirement for an individual. Instead, it is perhaps one of the most important tax-saving routes, which, when properly directed, can lower the tax liability and increase tax efficiency. The taxation on real estate purchases has become far more straightforward than it previously was. Several taxes previously applicable to real estate purchases (VAT, service tax, etc.) have been merged under a single, unified tax structure to implement the Goods and Services Tax (GST).
Real Estate Taxation Guidelines
Taxation varies depending on which of these groups you belong to:
Construction-in-progress, and
Completed properties
Affordable housing properties and non-affordable housing properties
Affordable housing is defined as residential properties with a carpet size of up to 90 sqm in non-metropolitan areas and up to 60 sqm in metropolitan cities, and a value of up to Rs. 45 lakhs. The non-affordable (or luxury) category exists outside of these values.
Metropolitan cities include Delhi-NCR, Bengaluru, Chennai, Hyderabad, Mumbai-Mumbai Metropolitan Region, and Kolkata.
Taxes on under-construction properties
Stamp duty, registration, and GST are among the statutory and legal charges for under-construction homes, ranging from 15-20%, depending on the state.
Goods and Services Tax (GST)
Under the Central Government's new unified tax scheme, under-construction units were initially taxed at 18%. The government has also included a provision that allows a developer to deduct land value equal to one-third of the total sum paid, lowering the effective GST rate on such units to 12%.
The GST rate on an under-construction property is 5% for non-affordable housing. On the contrary, it is 1% for affordable housing where payment is received, but the construction is ongoing, i.e. no completion certificate has been granted.
Stamp Duty
To make a property transaction lawful, stamp duty is paid on the sale agreement, and it varies from state to state.
For example, the stamp duty in Delhi is 6%, but it is currently 5% in Chattisgarh. Stamp duty represents 5% to 8% of the overall property buying cost. Most states provide women with a 1-2% tax break if they register a property in their name.
Registration charges
Buyers must pay a registration fee of 1% of the entire cost of the property at the district sub-office registrar's to register a sale agreement with a government-approved registration officer.
Ready-to-move properties
Tax Deduction at Source (TDS)
TDS was implemented by the Finance Act of 2013 under a new section 194 (A) of the Income Tax Act of 1961. This tax deducts a certain proportion of the money during an individual's sale transaction. According to this clause, anyone buying a home must pay the TDS to the seller as part of the consideration for the transfer of immovable property, excluding agricultural land.
If a buyer purchases a property with a sale price of Rs. 50 lakhs or more, the buyer must deduct TDS of 1% and pay the balance to the seller. TDS must be deducted on the value of the sale consideration, not the Stamp Duty Value of the property.
GST on Flats After Certificate of Completion
There is no GST on properties that are ready to move in, i.e., after construction; instead, GST only applies to the sale of houses still being built. The acquisition of a completion certificate qualifies a property as ‘ready-to-move’.
Stamp Duty & Registration charges
It should be remembered that stamp duty and registration fees must be paid regardless of whether the property is being built or is ready to live into.
About Indiassetz
Indiassetz is a professionally managed firm comprised of banking and finance sector veterans who have gotten together to produce a one of a kind Real Estate Banking Platform. Their extensive experience ensures that customers' assets are properly valued. Liaising with government agencies is an important part of the paperwork that Indiassetz provides to customers who may not have the luxury of time.
Despite repeated demands since implementing the GST regime to abolish stamp duty and registration fees on Real Estate, the government has made little progress. As a result, stamp duty and registration fees continue to be levied on property transfers in India. While states collect stamp duty ranging from 5% to 10%, the registration cost is 1% of the property value.