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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, goods and services tax (GST) 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.
Goods and services tax (GST)
GST is an indirect tax levied on goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government. This charge is only applicable to under-construction properties. For regular housing projects, 5% GST is applicable while affordable housing project attracts only 1% GST.
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.
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 GST, 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.
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, GST is not applicable.
- In the case of ready-to-move-in homes, where the buyer is not buying from a developer, GST is not applicable.”