There are several taxes to be paid while buying different properties. What are the legal taxes that a buyer for home has to pay on the purchase of a home? Here is a sum-up to the types of the taxes and duties payable by the buyer.

Apart from the cost of the house, a large chunk of net home cost consists of taxes and duties. The purchaser of a home in India has to primarily bear the burden of four duties payable at the time of purchase of a home. They are –Stamp duty, Value added Tax or VAT, Service Tax and Registration charges. The amount of Stamp duty, VAT and registration charges may vary from state to state but the rate of Service Tax is common throughout the country as it is levied by Central Government.

 Stamp duty

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.

Registration charges

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

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.

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 homebuyers?

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% of 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% of floor rise and other charges.

From a tax perspective, the following points are important for homebuyers:

• 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.