When purchasing real estate in India, one must account for a sizeable amount of additional expenses to cover taxes. When selling real estate, the seller is responsible for paying a portion of the applicable taxes. However, the burden ultimately falls on the buyer because the seller will typically factor any tax implications into the price they offer.
Stamp duty, registration fees, value added tax (VAT), and service tax are the four primary categories of taxes that must be paid when purchasing a piece of real estate. Let's understand these charges in detail.
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Stamp Duty
The sale agreement is subject to a stamp duty charge in order to ensure that all parties involved in the property transaction, i.e., buyers and sellers, are legally bound by the terms of the agreement. If the value stated in the agreement is higher than the current market value of the property, then that is the one that will be used to determine the amount. The Ready Reckoner Rate is what the registration officer uses to determine the current market value of the property (RR Rate). The transaction cannot be used as evidence in a court of law unless there is a stamp on the papers, which constitutes the sale agreement.
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When a property is transferred, the payment of stamp duty must take place. The amounts that each state must pay for stamp duty are different. A reduction in the amount of stamp duty that must be paid is offered by states such as Delhi, Haryana, and Rajasthan if the purchaser is a woman. Depending on the regulations in effect in a given area, the actual percentage could be anywhere between 6% and 7%. In the event that the stamp duty is not paid, a penalty may be imposed in accordance with the laws of the state.
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The amount that must be paid in stamp duty may change depending on a number of factors, including the age of the property being purchased, its location, the nature of the property (whether it is residential or commercial), and the gender of the buyer (male, female, or a partnership of both).
There are currently three different ways that the stamp duty can be paid. One option is to do so through a registered vendor by purchasing blank stamp paper and hand-writing the agreement on it. Two: by writing the agreement down on a piece of plain paper, then franking it at a bank that is approved for the purpose by depositing the necessary stamp duty. And three: through the online system, also known as e-stamping, which is done over the digital platform that is provided by the Stock Holding Corporation of India Limited (SHCIL).
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Tax Paid Upon Registration
The registrar's office is where the important documents and contents of the property transaction must be registered before the transaction can be finalized. These documents serve as legal proof of the transaction, helping to avoid disputes and allowing evidence to be presented in a court of law if necessary. The fee for registering a vehicle in each Indian state is different. In a number of states, it might be somewhere around one percent, with the state laws determining an upper and lower limit for the range. Both the buyer and the seller are required to physically appear at the office of the registrar during the process of registration. They must bring the required documents with them, which include a copy of the stamp duty payment and a proof of identification.
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Value added tax (VAT)
VAT is another tax that is contingent on the local rules and regulations, just like stamp duty and registration tax. It differs from state to state. While some states base their value-added tax (VAT) rates on the total market value of the property that is currently under construction, others base their rates on the price of the materials that are being used. The VAT is handed over to the seller, who is then responsible for making the required deposit with the government. When purchasing a property that is still in the construction phase, rather than when purchasing an already finished project, VAT is due.
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Tax on Services
The transaction of a property that is still in the process of being built is subject to a service tax levied by the central government. A tax equal to 25 percent of the total value of the property is imposed, while the remaining 75 percent is considered to be the value of the land on which the building was constructed. It indicates that the amount of service tax that would be owed on that value would be 15 percent (the current amount of service tax), which is equivalent to 3.75 percent of the total value of the property. The purchaser is responsible for remitting the service tax to the developer, and the developer is obligated to remit the tax to the appropriate governmental agency.
Keep In Mind
As a result of the fact that stamp duty and registration fees are eligible for tax deductions under Section 80(C), you are permitted to claim a tax deduction of up to Rs 1.5 lakh. Because the imposition of VAT is the prerogative of a state, you should always refer to the rules and regulations of the location in which you intend to buy property before making any purchases. When purchasing real estate, it is important to have a transparent conversation about the price of the property with the seller and to include in the agreement all of the information pertinent to the price breakdown, including applicable taxes and fees.
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