Taxes and duties constitute a large part of the total home buying cost. There are four types of taxes and duties that are levied on the purchase of homes in India – stamp duty, value-added tax (VAT), service tax (ST) and registration charges. The rate or amount of stamp duty, VAT and registration charges, may vary from state to state, whereas service tax comes under centre’s control.
Stamp duty is payable to the state government. Payment of this duty denotes the legal status of the transaction. A sale agreement that is not appropriately stamped, is not acceptable as confirmation in the court of law.
Value-added tax (VAT)
“VAT is typically levied on the sale of goods and is applicable for house property, as it involves the transfer of ownership rights from the seller to the buyer. It is pertinent to note that VAT is applicable, only in the case of under construction properties,” explains Gautam Saraf, managing director, Mumbai, Cushman & Wakefield.
The agreement executed between the buyer and seller (owner/developer) of a house property, should compulsorily be registered, as per the Registration Act. If the agreement is not registered, it is not admissible as evidence in a court of law.
Service tax is payable to the central government. This charge is only applicable for under construction properties. Service tax is charged at a specific rate on the basic cost of the property (cost of land and construction) and at a different rate on other cost items, such as preferential location charges, floor rise charges, initial maintenance charges, club house, etc.
Who should pay these charges?
“Payment of stamp duty and registration charges is the responsibility of the buyer. However, due to poor market conditions in recent times, some developers have offered to bear this cost. With respect to service tax and VAT, it is the responsibility of the developer to collect it from the buyer and deposit it with the concerned department,” informs Nishant Agarwal, MD, Avighna India.
If the stamp duty and registration charges are not paid, the registration procedure itself will not be complete and therefore, the property would not be legally transferred in the name of the buyer.
Are taxes the same for all classes of home buyers?
According to experts, most of the above taxes and charges are applicable on a similar basis, to all categories of home buyers, except for service tax. The service tax brackets are as follows:
- If the value of the house property is more than Rs 1 crore, then the service tax chargeable is 4.50% on the sale consideration and 15% on floor rise and other charges.
- If the value of the house property is less than Rs 1 crore, then, the service tax chargeable is 3.75% on the sale consideration and 15% on floor rise and other charges.
Taxes on an under-construction Vs ready-to-move-in home
Agarwal further explains, “From a tax perspective, the following points are important for home buyers:
- In the case of an under-construction property, all the taxes are applicable.
- In the case of ready-to-move-in homes, where the buyer is buying from a developer and the occupancy certificate and completion certificate have been received, service tax is not applicable.
- In the case of ready-to-move-in homes, where the buyer is not buying from a developer, service tax and VAT are not applicable.”