by THEPROPZY 
With the introduction of RERA (Real Estate Regulatory Authority) and GST (Goods and Services Tax), the Government of India has taken significant steps to simplify and expedite property transactions . GST has unified and replaced several indirect taxes such as VAT, service tax, and others RERA has brought greater transparency and efficiency to property transactions in the Indian real estate sector. These measures are not just about restoring trust among homebuyers; they also aim to provide financial relief and make homeownership more affordable. By offering tax deductions and streamlined processes, the government is paving the way for individuals to achieve their dream of owning a home with minimal hassle.
If you are planning to invest in real estate in India, it’s crucial to understand the types of taxes involved and explore strategies to save on these costs. Below, we delve into the taxes associated with property purchases and share practical tips to help you reduce your financial burden.
Taxes Involved When Buying Property in India
depending on whether the property is under construction or ready to move into. These taxes vary by state and type of property, making it essential for buyers to familiarize themselves with applicable charges.
Taxes on Under-Construction Properties
For under-construction properties, buyers pay several taxes, including GST, stamp duty, and registration charges.
- Stamp Duty: This is a tax levied to legalize the property transaction as per the sale agreement. The percentage varies from state to state but generally ranges between 5-7% of the property value.
- GST: A 12% GST is charged on the base price of under-construction properties. This tax replaces multiple indirect taxes, providing a standardized structure.
- Registration Charges: Buyers must also pay a fee to register their property with the district sub registrar’s office, ensuring legal ownership.
Taxes on Ready-to-Move-In Properties
For ready-to-move-in homes, buyers pay stamp duty and registration charges. Unlike under-construction properties, ready-to-move-in homes are exempt from GST under the revised Goods and Services Tax framework. This exemption can lead to substantial savings, as buyers avoid the 12% GST typically levied on under-construction properties.
How to Save on Taxes When Buying Property in India
While buying property involves significant financial commitments, there are several ways to reduce the tax burden. The Indian government has introduced numerous initiatives and provisions to make homeownership more accessible and affordable.
1. Leverage the Affordable Housing Scheme
To support the the government has rolled out tax benefits for affordable housing projects.
- Under the Pradhan Mantri Awas Yojana (PMAY), eligible buyers from Economically Weaker Sections (EWS), Lower Income Groups (LIG), and Middle-Income Groups (MIG-I and MIG-II) can access credit-linked subsidy schemes (CLSS).
- Buyers purchasing homes under this scheme are subject to a reduced GST rate of 8%, down from 12%. Additionally, many developers waive certain charges, .
2. Claim Tax Deductions on Stamp Duty and Registration Charges
Under Section 80C of the Income Tax Act, 1961, homebuyers can claim a tax deduction of up to ₹1.5 lakhs on stamp duty and registration charges, provided they meet the specified conditions. This benefit significantly offsets the upfront costs of property registration.
3. Save on Interest Through Home Loan Deductions
For buyers financing their purchase with a home loan, substantial tax savings can be achieved:
- Under Section 24 of the Income Tax Act, a tax deduction of up to ₹2 lakhs is allowed on interest paid for loans taken for self-occupied properties.
4. Opt for Joint Home Loans
By taking a joint home loan, co-borrowers can double their tax benefits:
- Each borrower can claim deductions of up to ₹2 lakhs on interest payments under Section 24 and ₹1.5 lakhs on principal repayments under Section 80C. This strategy is particularly effective for families or joint property purchases.
5. Claim Tax Deduction on Principal Repayment
Section 80C also allows property buyers to claim up to ₹1.5 lakhs on principal repayments, provided the property is retained for at least five years. Selling the property within this period may negate the deduction, as the amount is added back to the taxable income in the year of sale.
Final Thoughts
Understanding the taxes involved in buying property and utilizing available deductions can significantly reduce the financial strain associated with homeownership. Whether you’re looking for a home in Delhi, Mumbai, or any other part of India, these tax benefits can make the process more affordable and manageable. By leveraging government initiatives and taking advantage of tax-saving opportunities, you can turn your dream of owning a home into a reality while keeping your costs in check.
