Affordable housing offers a lower entry price, but taxes, duties and statutory charges can add a substantial amount to the overall purchase cost
Buying a home is a cherished dream for many, but the purchase involves far more than just the property’s price tag. Buyers must also account for expenses like taxes, registration fees and stamp duty. Understanding these costs in advance can help homebuyers plan their finances better and avoid unexpected expenses. Here is a quick guide to the key additional costs associated with buying a home in India.
GOODS AND SERVICES TAX (GST)
In India, GOODS AND SERVICES TAX (GST) applies only to under-construction properties. The effective GST rate is five percent for regular housing projects and one percent for affordable housing projects. However, buyers should note that GST calculations are not always, straight forward. Apart from the apartment cost, developers may collect charges like External Development Charges (EDC), Infrastructure Development Charges (IDC) and Preferential Location Charges (PLC). While EDC and IDC relate to infrastructure being developed around a project, PLC is charged for units with advantages like better views or locations. The confusion arises because the GST treatment of these charges may vary, making it difficult for buyers to determine whether they are being taxed correctly. “Some developers do not levy GST on the recovery of EDC and IDC, claiming these are statutory levies. In the past, some developers charged full-service tax on PLC, parking and clubhouse facilities instead of applying the lower GST rates now prescribed under the law.” Completed or ready-to-move-in properties, including flats and bungalows with a Completion Certificate (CC) or Occupancy Certificate (OC), are exempt from GST. However, buyers may still have to pay GST on ancillary services such as parking fees, club membership, society maintenance and other charges collected at the time of possession.
KEY TAXES HOMEBUYERS SHOULD KNOW ABOUT
Stamp duty:
A legal charge payable during property purchase. Rates vary across states and are usually linked to the property’s value.
Registration charges:
Fees paid to officially record property ownership with government authorities.
Property tax:
Levied by municipal authorities based on factors such as location,size,usage, and market value.
Capital gains tax:
Applicable when a property is sold at a profit. Tax treatment depends on the holding period of the asset.
Tax on rental income:
Rental earnings from a property must be declared as taxable income while filing income tax returns.
STAMP DUTY AND REGISTRATION CHARGES
Property registration is a crucial step that establishes ownership. Under Section 17 of the Registration Act, registration is mandatory for validating property transactions. “A sale deed is considered incomplete without registration and payment of stamp duty.” Registration charges vary across states and are generally calculated as a percentage of the property value. Stamp duty is a mandatory tax paid on property transactions before or during the registration of the sale agreement. Rates differ across states, and many offer concessional stamp duty rates for women buyers to encourage female property ownership. Together, stamp duty and registration charges can add a significant amount to the overall purchase cost and should be factored into the budget before finalising a property purchase.
POST-OCCUPANCY CHARGES
After taking possession, buyers are required to pay ongoing local taxes and maintenance charges. “Maintenance fees are typically collected by the housing society, Residents Welfare Association (RWA), or apartment association, and are distributed proportionally among residents. These charges generally cover utilities, housekeeping, security, and maintenance of common amenities. GST at 18 percent may apply on society maintenance charges if they exceed the prescribed threshold.” Buyers may also be required to contribute towards the corpus or sinking funds, depending on the housing society’s rules.
Homeowners may also face tax liabilities after purchase. If a property is sold at a profit, capital gains tax may apply depending on the holding period. Similarly, rental income earned from leasing a property must be declared while filing income tax returns.
