All about taxes levied on property purchase

 

When purchasing a house, the cost exceeds the asking price. Taxes are a big consideration. Different types of properties are subject to different taxes, which might affect the total cost of your investment. Understanding these taxes is critical to making educated decisions and potentially saving money. Read on to learn about the various taxes paid on property purchases and how to avoid them. 

Taxes on property buying

Here is a list of some of the taxes that are levied on property purchases.

 

Goods and services tax (GST)

Under the new unified tax structure established by the federal government, under-construction properties were initially taxed at 18%. The government included a provision that permits a deduction for land value equal to one-third of the total cost charged by a developer, effectively lowering the GST rate for such units to 12%. However, in February 2019, the government changed the real estate tax rate, cutting it to 5% for under-construction apartments and 1% for affordable dwellings. It is vital to note that governmental taxes such as stamp duty and registration charges apply to the purchase of under-construction units.

 

Tax Deduction At Source (TDS)

The Finance Act of 2013 established TDS under Section 194-IA of the Income Tax Act of 1961. According to this clause, anyone purchasing a property must pay TDS to the seller for the transfer of immovable property, with the exception of agricultural land. The TDS must be reported in the name of the vendor. The government expanded Section 194-IA of the Income Tax Act to include all residential society-based charges, such as car parking fees, club membership fees, water or electricity facility fees, advance fees, maintenance fees, and any other charges associated with the transfer of immovable property for TDS levy. Since September 1, 2019, TDS has been paid at 1% on property values exceeding Rs 50 lakh.

Stamp Duty

The government collects stamp duty on property transfers in the same way that it collects income or sales taxes. It typically equates to around 5% of the property's market value, though rates vary by state and can occasionally be more. The buyer must pay this duty at a specified bank or collecting location prior to property registration, with penalties for late payments. Stamp duty is calculated using government-issued ready reckoner rates and is required for legally authenticating a property sale. This tax applies to all transactions that involve the exchange of papers and the execution of property-related instruments.

Registration Fee

Registration costs are necessary expenses made during the registration procedure, which includes documenting sale documents with a registering officer. Section 17 of the Indian Registration Act of 1908 makes it essential by law to register papers relating to property sales, transfers, or leases. Failure to register these documents may prevent the owners from taking legal action. The registered paperwork is the ultimate agreement between the parties, establishing the buyer's legitimate ownership and protecting against potential disputes or fraud. Registration fees are typically 1% of the agreement value, however this number can vary by state, as decided by local government rules.

 

How can I save taxes on property purchases?

After discussing how taxation affects property purchases, let's look at tax discounts and exemptions that can greatly reduce a homebuyer's financial burden.

 

Tax deductions for stamp duty and registration fees

While stamp duty and registration fees normally account for 5%-7% of the property cost, they are eligible for tax deductions under Section 80C of the Income Tax Act of 1961. Buyers can claim up to Rs 1.5 lakh if the payments are completed within the same year of the claim, the home is fully constructed, and it is meant for personal use rather than investment.

 

Tax deductions for home loans

Homebuyers who finance their acquisition with a house loan can benefit from deductions under Sections 24, 80C, and 80EE of the IT Act, subject to certain conditions:

• Interest repayment: Section 24 permits a maximum deduction of Rs 2 lakh for interest on a self-occupied property, but no restriction applies to rental buildings.

• Principal repayment: Section 80C provides a deduction of Rs 1.5 lakh on the principal amount repaid annually, subject to not selling the property within five years of possession to avoid reversal of claimed deductions.

• Additional benefit for first-time buyers: Section 80EE gives an extra Rs 50,000 deduction for first-time homebuyers if the loan amount is Rs 35 lakh or less and the property value does not exceed Rs 50 lakh.

• Joint home loan: In the event of joint loans, each co-owner can claim deductions of up to Rs 2 lakh on interest and Rs 1.5 lakh on principal under Section 80C, provided they are co-owners of the property purchased with the loan.

Know the legal and taxation aspects before you sell a residential property

Finding a buyer for your house is only one aspect of selling; to ensure a successful transaction, you also need to be aware of the applicable laws and taxes. If you follow these guidelines, selling your home may go more smoothly and there may be fewer unpleasant surprises. This article will teach you the essential tax and legal information you should know before listing your home for sale so you can be ready and have a smooth transaction.

Important legal considerations

Title confirmation

 

Verifying title is an important stage in the sale of a property. It entails investigating the property's past to confirm that the seller is the true owner and that there are no outstanding legal issues or claims. This keeps things easy for you and ensures that the title is clear and unambiguous.

The process of title verification

Verify the ownership background: Examine the past of the property to determine who has owned it and confirm that each transfer was authorized.

 

Obtain a Certificate of Entrance: To see if the property has ever been involved in any legal disputes or claims, get this document from the local office.

 

Examine the property documentation: See formal documentation to confirm details such as ownership, location, and size.

 

Examine the asset: Check that the property fits the documentation and look for any problems by visiting it.

 

Examine legal documents to ensure they are accurate, full, and authentic. 

 

Required Documents

Title deeds: documentation of ownership conversion.

 

Gift deeds: If the asset was given to you.

 

Records attesting to inheritance: Should the asset be inherited.

Power of attorney: When the owner's property is sold by a third party.

Every charge or claim made against the property is listed in a certificate of encumbrance.

 

Property card: A formal documentation of property information.

 

Construction licenses and certificates of occupancy: Demonstrate that the building was constructed and is occupied legally.

 

Receipts for property taxes: Verify that taxes have been consistently paid.

Sale contract

This official contract lays out every aspect of the selling of the real estate. It contains details on the item, the cost, the method and timing of payment, the time you'll receive possession of the item, and any additional terms. This agreement is usually written on a specific stamp paper in order for it to be legally enforceable.

 

Certificate of No Objection (NOC)

You require an NOC from the housing society or association if the property is located in an apartment complex or housing society. 

This certificate certifies that the ownership transfer has been approved by the community and that there are no outstanding fees or other issues.

Clearance of property taxes

Make sure all property taxes have been paid in full before selling. To demonstrate that there are no outstanding taxes, you must obtain a clearing certificate from the local authorities.

Registration of sale deeds

This is the crucial phase in the formal transfer of property ownership. The selling deed needs to be registered with the Sub-Registrar's office within the specified time frame. Stamp duty and registration costs are needed for this process.

 

Transfer of possession

Verify that all utility services, such as gas, water, and electricity, are moved into the buyer's name.

 

Extensive diligence: Verify the buyer's identification and financial situation before finalising the transaction to ensure accuracy.Ensure that all financial transactions are carried out in a formal, lawful manner.

Important topics of taxation

Tax on capital gains

You might have to pay capital gains tax in India on any earnings you make when you sell your house. If profits are sold within 24 months after purchase, they are considered short-term and are subject to taxation at your regular income tax rate.

The profit is long-term and taxed at a fixed rate of 20% if you sell it after 24 months, with certain perks for inflation adjustments.

 

Indexation 

Indexation reduces your taxable profit by factoring inflation into the acquisition price of your property. It takes price increases into consideration over time, so the taxes you pay on your gain will be lower.

 

Capital Gains Calculation

Subtract the sale price from the adjusted cost of the property and any improvements to determine your capital gain. Capital Gain = Sale Price - (Adjusted Purchase Cost + Improvement Costs) is the formula.

 

Tax-saving strategies

Section 54: You can defer paying taxes on a profit if you utilize it to purchase another residential property within two years after the original transaction.

Section 54F: You may also receive a tax benefit if you invest the profit in specific bonds.

Section 54EC: You can lower your taxable income if you invest the profit in certain bonds issued by REC Limited or the National Highways Authority.

 

Additional tax implications

TDS (Tax Deducted at Source): The buyer must subtract 1% of the sale price from the sale and pay the tax authorities if the property is sold for more than Rs. 50 lakhs.

Stamp duty and registration fees are not taxes; rather, they are sums of money you pay the government to transfer ownership of the property.

Sustainable waste management solutions for your housing society

Understanding Household Waste: A Categorised Breakdown

Every household produces waste, but recognising the various components is critical for responsible management. Here's an overview of the four main categories of household garbage.

 

1. Organic waste

Organic trash refers to biodegradable materials derived from living organisms. When organic waste is put in landfills, it decomposes anaerobically (without oxygen), producing methane, a strong greenhouse gas that contributes to climate change. Examples include food scraps (fruit and vegetable peels, leftover food), yard garbage (leaves and twigs), and paper towels. Composting organic waste at home or through community initiatives converts it into nutrient-rich fertiliser, minimising the need for chemical alternatives and boosting soil health.

 

2. Non-organic Recycling Waste (Solid Rubbish)

This category includes waste materials that can be treated and converted into new products. Recycling these products conserves natural resources (trees, metals, minerals), uses less energy during manufacture than using new materials, and decreases landfill waste.

 

Examples include paper products (newspapers, cardboard boxes), plastic bottles, metal cans (food and beverage containers), and glass bottles and jars.

 

3. Hazardous Waste

Improper disposal can affect both human health and the environment. Improper hazardous waste disposal can pollute land and water, harm wildlife, and pose health concerns through inhalation or touch. These items necessitate specific disposal methods, which may involve collection by authorised agencies or certified hazardous waste disposal sites. Never put hazardous waste in conventional trash bins.

 

Batteries, expired medications, paint containers, discarded cleaning supplies, fluorescent bulbs, and electronics are all examples of trash.

 

4. Inert Waste

Non-organic, non-hazardous materials with negligible chemical or biological reactivity. Inert trash is normally disposed of separately at authorised landfills or recycling facilities, depending on the material type and local legislation.

 

Unlike recyclable or hazardous garbage, inert waste does not require special processing but does have specialised disposal requirements due to its size or composition.

 

Examples include construction waste (bricks, concrete, tiles), ceramic fragments, and glass shards (from non-containers).

 

Residents can divide rubbish into bins labelled as follows:

• Green Bin (Organic garbage): Food scraps, vegetable peels, coffee grounds, eggshells and yard garbage (leaves and twigs).
• Paper, plastic bottles, metal cans, glass bottles, and jars are all accepted in the blue bin (recyclable waste).
• Red Bin (Hazardous Waste): Used batteries, expired medications, paint containers, and cleaning products (see to product labels).
• Black Bin (Inert Waste): Construction debris (bricks and concrete), ceramic fragments, and glass shards (excluding bottles and jars).

 

Colour-coded Bin System: A standardised colour-coded bin system is recommended for proper segregation and collection purposes. This system commonly uses:

• Green dumpsters contain organic trash.
• Blue containers contain recyclable garbage.
• Red bins: Hazardous garbage.
• Black bins: inert trash.

• Collaboration With Authorised Waste Management Service Providers: Partnership with registered and authorised service providers is critical for appropriate trash disposal. The service providers are accountable for:

• Collection:  the collection of segregated garbage from specific areas throughout society.

• Transportation: Moving collected garbage to proper processing facilities such as composting units, recycling plants, or landfills while conforming to specific standards for each waste type.
• Disposal: Ensuring that garbage is properly and legally disposed of at designated facilities while minimising environmental damage and following to safety rules.

• Find Authorised Service Providers: Residents or the Resident Welfare Association (RWA) can receive a list of authorised waste management service providers in their region by contacting their local municipality or environmental agency. Online tools and mobile applications can also help you find and connect with licensed service providers.

 

Empowering Resident Action: The Three R's of Waste Management

The 3Rs - Reduce, Reuse, and Recycle - are the foundation of responsible waste management in residential communities. Residents can make a substantial contribution to a cleaner, more sustainable environment by adopting and applying these principles at the individual and communal levels.

 

Reduce

• Reduce Mindful Consumption: This notion promotes conscious purchase and waste reduction. This involves:

• Plan meals: Creating grocery lists and meal planning based on actual needs helps to reduce impulse purchases and food waste.

• Prioritising bulk purchases: Purchasing bigger quantities of products, particularly ones with minimum packing, can help to minimise overall package waste.

• Supporting Sustainable Businesses: Choosing companies with eco-friendly packaging and responsible practices promotes sustainable production and lowers individual waste footprints.

 

Practical Tips for Waste Reduction At Home

• Avoid single-use goods. Replace throwaway items such as plastic bags, cups, and cutlery with reusable ones.

• Select sturdy and repairable things. Choose well-made things that can be repaired or maintained over easily disposable alternatives.

• Composting food leftovers and garden trash minimises waste while also producing nutrient-rich fertiliser for gardens or communal gardens.

• Use reusable shopping bags: Bring your own cloth bags to the grocery store and avoid using single-use plastic bags.

• Give thoughtfully: Consider presenting experiences or things with minimal packing to save waste.

Reuse

 

Promoting a reuse culture can assist both the environment and the economy, as well as foster community spirit.

• Community Exchange Programs: Set up events or platforms where residents may trade or give old items such as clothes, books, or furniture, giving them a second life and lowering the demand for new purchases.

• Repair Workshops and Upcycling Events: Organise workshops or events to teach residents about basic repair and upcycling skills. This increases the longevity of products and encourages ingenuity in reworking old materials.

• Benefits of Reuse: Reusing existing products helps homeowners conserve resources and energy used to produce new ones.

• Reduce landfill trash while minimising environmental effect.

• Save money by avoiding unneeded purchases.

Recycle

Effective recycling necessitates effective trash segregation at the source, which is the responsibility of all residents.

• To educate residents, work with their trash management service provider to understand which materials are allowed for recycling.

• This information should be clearly communicated to residents through informative handouts, posters, or workshops.

Preparing recyclables:

• Encourage households to clean and sort recyclable materials before placing them in designated bins.

• Provide specific directions on what things are acceptable and what must be removed (such as food residue from plastic containers).

• Addressing Challenges: Limited recycling infrastructure in certain locations can be a challenge.

• Consider other alternatives, such as on-site composting for organic waste.

• Partnering with local recycling programs that may accept a broader range of materials.

• Advocating for better recycling infrastructure with local governments.

By adopting the 3Rs, residents empower themselves and their community to actively participate in the creation of a sustainable future. Implementing these behaviours individually and together decreases waste generation, saves resources, and promotes a cleaner and healthier environment for everybody.

 

Conclusion

Practicing appropriate waste management enables your community to contribute to a cleaner, greener India. Residents can create a sustainable future for themselves and their environment by putting the 3Rs into action and encouraging collaboration. NoBrokerHood's software and services may further improve communication, resident participation, and task management, supporting a seamless transition towards a sustainable future for your community.