There are a number of taxes associated with the sale of property at the time of each real estate transaction. Some of these property transfer taxes must be paid specifically by the buyer, and some specifically by the seller. In addition, there are some taxes on the sale of property that are applied nationwide and others that are exclusively applied to certain states.
The main tax impositions for selling and purchasing real estate in India are listed below.
- Stamp Duty
Stamp duty is a type of tax that is levied on the purchase or sale of property, such as land, apartments, or commercial buildings. The stamp duty rate varies across different states and cities in India and is determined by the state government.
The amount and time span of the stamp duty at the time of registration will depend on the property’s valuation.
- Goods and Services Tax (GST)
Indian real estate buyers are required to pay a number of taxes, including GST. Numerous changes have occurred since the real estate GST rate was implemented in 2017.
The previous tax structure obliged the buyer to pay service tax, VAT, stamp duty, and registration fees when purchasing a building that was still being built. Service tax and VAT exemptions for real estate acquisitions were also offered throughout the post-completion period. The buyer only had to cover the cost of registration and stamp duty for a finished dwelling.
However, under the GST, properties that are still under construction are subject to a single rate of 12%, whereas properties that are finished or ready for sale are exempt from GST provided that the Completion Certificate (CC) has been given.
- Capital Gains Tax
Any revenue that results from the sale of a “capital asset” is considered income from capital gains. Tax on these capital gains is levied in the year that the capital asset is sold. A different term for this is “Capital Gains Tax.” Long-term capital gains (LTCG) and short-term capital gains (STCG) are the two forms of capital gains.
- Property Tax
Owners of real estate are required to pay a property tax in India. It is an annual fee paid by property owners to the government of India. Depending on which entity is permitted to do so in a particular state, this tax is collected by the municipal corporation or the local government. Property in this context refers to both land and improvements made to that.
- Tax Deducted at Source (TDS)
A withholding tax of 1% of the price payable to a resident transferor is required from the buyer of an immovable property (except that of agricultural land) equivalent to Rs 50 lakh or more.
The purchaser of the property would be required to withhold the TDS and deposit it in the government treasury in accordance with the laws regarding tax deducted at source.
- Ownership Charges
Non-owner-occupied immovable property is subject to a tax charge for “income from house property,” which represents rental income. This could, for instance, be a second home owned by a person that is rented out or held for capital appreciation, or it could be a business’s land and buildings that are held for investment purposes or rental income.
The annual value—the higher of the following—is used to calculate the tax.
- a perceived rental value derived from rate tables made available by the local government
- rent actually received
- market rental rates for comparable property.
It is essential to be aware of these taxes before purchasing or selling a property in Indian real estate. Certainly, it is wise to speak with a qualified tax counselor in order to comprehend the implications of taxes and reduce tax liability.