Real estate continues to be one of the most popular investment options in India. However, one of the biggest considerations for buyers is the tax implications of the purchase. Read this post to know how you can save taxes on a property purchase.
While real estate has continued to deliver exceptional returns in the long run, property purchase tax is a burden most buyers would not like to carry. While the taxes cannot be eliminated entirely, there are a few smart ways to at least reduce the tax outgo. Here are a few tips that can help you in the endeavour:
1. Stamp Duty Rebate for Women Buyer
The stamp duty is the tax which is payable on the sale agreement, before or on the date of property registration. It is by paying the stamp duty that you make the property purchase a legal transaction. In most cases, the stamp duty is considered as 5% of the total cost of the property; however, it varies between states.
It is applicable on ready-to-move as well as under-construction properties. One of the best ways to get up to 2% rebate on stamp duty is to register the property in a woman's name. Many states like Punjab, Delhi, Rajasthan and Haryana already offer this tax rebate.
2. Using Government Guidance Rate for Reducing Stamp Duty and Registration Charges
Even the government maintains a minimum value at which a property can be registered. This rate is known as the Government Guidance Rate or Circle Rate and is considerably lower than the market price of a property in most cases. While purchasing a property, you can register the property at this rate as well.
So, if the market value of a property is Rs 1 crore and its Government Guidance Value is Rs 65 lakh with the Stamp Duty being 5% and Registration Charges at 1%, you can still save a considerable amount of money by going with the Guidance Rate while paying the house purchase tax.
However, most of the banks only offer up to 80%-90% of the registered value of the property in Home Loans. So, this might not be a prudent option for Home Loan applicants who cannot arrange a higher down payment.
3. Know More About Local Registration and Stamp Duty Laws
As the registration charges and stamp duty vary between states, knowing more about the rules applicable in your state can be very helpful. For instance, in Maharashtra, if you are purchasing a property from a buyer who only bought it less than a year ago, the registration charges will apply only to the net profit.
For instance, if a buyer purchased a property at Rs 90 lakh around ten months ago and now wants to sell it at Rs 95 lakh, the new buyer will only be required to pay registration charges on Rs 5 lakh.
4. Ready-to-Move Properties for GST Exemption
As per the recent changes by the Goods and Services Tax (GST) Council, GST of 5% will be applicable if you purchase an under-construction property. However, ready-to-move properties are exempt from paying any GST.
If you are planning to purchase a property and yet to select one, ready-to-move properties can help you save some money on GST.
5. Home Loan to Save Income Tax
Buying a home with a Home Loan can also help you reduce your income tax. Under Sections 80C, 24, and 80EE of the IT Act, you can claim income tax deductions on the principal as well as the interest amount if you meet the required criteria.
Moreover, if you take a joint loan, both the holders can claim a tax deduction of up to Rs 1,50,000 on the principal amount and up to Rs 2,00,000 on the interest amount paid in a financial year.
Understanding Tax on Property Purchase
There are different ways to pay a lower tax on home purchase. Most buyers are generally unaware of such rules and end up paying a considerably higher tax on a property purchase.
Try to know more about the local laws as they vary between states and can help you save money, making the whole process of purchasing a property slightly more affordable.
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