Buying a flat is the investment decision of a lifetime. In India, people work round the clock to earn which will result in savings. This savings will subsequently be invested in buying a house.
What are the effects of new tax regime?
As the popularity of Apartment living grows, more and more people are in the process of negotiating purchase transactions with developers. The taxation on property purchase, has become much simpler than it was before. With the roll-out of the Goods and Services Tax (GST), several taxes previously applicable on real estate purchase (VAT, service tax, etc.) have been subsumed under this single unified tax system. Statutory and legal costs for under-construction properties vary between 15-20 per cent, depending on the state in question and broadly include stamp duty, registration and GST. For example, in Maharashtra, the stamp duty is five per cent (now proposed to be six per cent). Under the new tax-regime implemented in 2017, under-construction properties are currently taxed at 12 per cent on the base cost of a property. However, the GST Council is mulling reducing this rate, with many anticipating it to be reduced to either eight per cent or five per cent.
How to get tax benefits by purchasing a property?
One of the major attractions of ready-to-move-in properties, is that they are exempt from GST, provided that the project has been issued a completion certificate. Buyers of such properties need to pay only the stamp duty and registration charges as taxes, which comprise seven to eight per cent of the total property cost. Another tax that a buyer needs to pay, after moving into his or her new home, is the annual property tax. The tax amount not only varies from state to state but also from city to city. In case there is an income generated by a property, that too is liable to be taxed. However, if the property is self occupied, then, only the annual property tax applies. While the government charges five to seven per cent of the property cost as stamp duty and registration taxes, one can claim tax deductions on these, under Section 80C of the Income Tax Act, 1961. Buyers can seek a maximum of Rs 1.5 lakhs as tax deduction, provided they fulfil certain conditions. For example, the taxes paid must be in the same year as that of claim, only fully-constructed properties are considered for this exemption and the property must be purchased for self-use and not as an investment.
Aditya Pratap is a lawyer and founder of Aditya Pratap Law Offices. He practices in the realm of real estate, corporate, and criminal law. His website is adityapratap.in and his media interviews can be accessed at http://www.youtube.com/@AdityaPratap/featured . Views expressed are personal.