Home Buyer’s Guide to Taxes and Duties Payable while Buying a Home
April 26, 2017
Buying a house is every family’s dream. It is an investment of a lifetime, made after a lot of research and analysis on the current real estate market trends. While buying a home, the home buyer should take into account the various taxes and duties payable to the government. Read on for a detailed explanation of the four broad categories of taxes and duties and let us provide you with an ultimate guide to buying a property.
Stamp duty is the most important fee paid by the buyer to the state government to attain full ownership of the house. The house will not be registered under your name unless the full stamp duty is paid. The amount of the fee differs from state to state and is usually 5 to 7% of the property value. Make sure your sale agreement is aptly stamped to make it legal and acceptable in the court of law.
The registration fee is charged by the court. It is the terminal legal agreement between the buyer and the seller and denotes the change of ownership from one party to the other. This fee is paid by the buyer and is usually 1 to 2% of the property value.
Stamp duty and registration fee are the responsibility of the buyer, but a few developers offer to take up these costs based on the real estate market conditions. Though these costs are just a small percentage of the total property value, they add up to big amounts based on the price of the development. For example, if your property value is one crore, the stamp duty would be 5% of the total value, which is five lakhs. The registration fee would be 1% of the value which is 1 lakh. So, the buyer is subject to pay six lakhs towards stamp duty and registration fee during the event of buying the property.
Service tax is an amount to be paid to the central government and is applicable only on properties which are currently under construction. The rate of service tax charged varies depending on the type of property. A particular rate is charged on the fundamental costs such as the cost of construction and price of the land, and a different rate is charged on other amenities such as the maintenance and floor rise charges. If the property is worth more than one crore, the service tax applicable on fundamental costs is 4.50%, and the service tax applicable on other charges is 15%. If the property is worth less than one crore, the service tax applicable on fundamental costs is 3.75%, and the service tax applicable on other charges is still 15%.
Like all goods that are on sale, value added tax (VAT) is levied on real estate properties as well. This tax is also paid to the government and denotes the transfer of ownership from one party to the other. However, this fee is also applicable only on properties which are still under construction and is charged on the construction value of the development.
Contrary to stamp duty and registration fee, it is the responsibility of the developer to gather the VAT and service taxes from the buyer and ensure they are submitted to the relevant department. These charges come up to 8 to 10% of the total property value.
To sum it up, if the property you are purchasing is still under development, you are subject to pay all the four taxes. However, if you are purchasing a developed property from a group of builders, you are not subject to service tax. But if you are buying a developed property from a property owner, then you are liable to pay only the stamp duty and registration fee.
As complicated as the process sounds, the procedure is simple when you buy your dream house from reputed builders like Casagrand for smooth transactions with a strong bond of trust. You can also check out our blog on everything you need to know about home insurance and make sure your home is safe with our safety and security guide. Book your dream home now!