Before buying a property, you need to be financially competent. You need to be prepared for the big change. But more importantly, you should have a thorough knowledge of the legal matters that accompanies the transfer of property. Real estate niche is chained in the heavy taxes; failure to the payment of which there can be unending legal proceedings.
It is necessary for the property buyer to understand his tax responsibilities and keep some cash aside to pay on time. It is estimated that the tax on the property comprises of nearly 40-45% of the total cost of the property. That is a huge amount and if one is not prepared beforehand, either there would be financial crises or he would have to quit the idea of purchasing. While most of the people are familiar with the registration charges or service tax, there are some more taxes that you need to know about. Let us see what are the taxes that you have to pay while owning a property.
1. Registration Charges
As the name suggests, the registration tax needs to be paid at the time of enrolling the property. This tax accounts for 1% of the transaction money typically, but the local government decides this percentage. It is paid while registering the documents of sales or transfer under the law. If the papers are not registered properly with the payment of the tax, the property owner is not entitled to contend any case in the court. This document is important because it protects the buyer against any frauds and illegal transactions.
2. Stamp duty
Stamp duty tax is often confused as or synonym to the registration charge but it is not. In fact, the stamp duty tax is imposed on the sale of the property just like a sales tax. The documents of the stamp duty prove the ownership of the property in the eyes of the law. This tax is collected by the state government and thus varies. It is approximately set at the minimum of 4% of the actual price of the property. To know more about the stamp duty tax, read this article.
3. Value Added Tax
This tax is levied on the under-construction properties since it is imposed on the movable goods. Buying a property from the builder, you have to pay the VAT while buying a property from the owner (another person) makes you entitled to payment of the transfer duty. It is a part of the sales agreement and it signifies the transfer of the ownership rights. This tax also varies with the state to state. Some cities even do not impose this tax on the sale of an apartment.
4. Service Tax
Service tax comprises of the land cost and the construction cost. It has been fixed by the government of India at 14%. It is to be paid on the construction goods only. So if you are purchasing a ready-to-move flat, you do not have to pay any service tax on that. Also, it is levied only when you are purchasing a property from the real estate builder (when the project is under construction during the transfer of the documents) and not on the transfer of the property from one owner to another.
5. Tax Deduction at Source
This is another tax that has been added to the list not so long ago. It states that the buyer of the property has to pay a percentage of the amount to the seller during the property transfer. This tax is submitted to the authorities under the name of the seller borne by the buyer. It is applicable on all the immovable properties except when the land is an agricultural one. When the transaction amount is more than 50 lakh, the TDS is charged at 1%.
Did you know about these taxes? Many house seekers do not. Let us make a good start towards buying the house by keeping the money for the taxes aside. The dream to get a dream house would come true only when you think like a rational person first. For more tax related queries, contact us. We will provide you with the right assistance.