How to save taxes on purchase of property

With the enactment of Goods and Services Tax (GST), today's taxation system in context of purchasing a property, has become much effortless than it was before July 2017. Several taxes previously applicable on property purchase like VAT, Service tax, just to name a few, now have all been comprehended under this single unified platform - Goods & Service Tax.

Tax exemptions, if availed appropriately, can contribute in a big way, in easing out the burden on a Home buyer.

Under-construction property

GST Council has approved a transition plan for the implementation of the new tax structure for housing units. Under the new plan, builders whose residential projects are incomplete will have the option to choose between the old tax rates and new ones for under-construction residential projects. Under new plan, the GST Council has reduced the current GST rates from 12% and 8%, for under-construction flats and affordable housing to 5% and 1%, respectively. The rates shall be effective from April 1, 2019.

Further, statutory and legal costs for under-construction properties vary between 15-20% depending on the state in question and broadly include stamp duty, registration and GST. For rendering a property transaction, Stamp duty by rule is to be paid on the sale agreement and this duty also varies from state to state.

For example, in Gurugram the stamp duty is 5% for female applicant, 6% for joint ownership and 7% for male applicant; in Maharashtra, the stamp duty is 5%, while in Karnataka it is currently 5.6%. As such, stamp duty accounts for between 5 and 7 % to the total property acquisition cost.

Tax deducted at source

TDS is charged at 1% for properties valued at more than or equal to Rs 50 lakh. It is deducted by the buyer, at the time of payment to the seller.

Ready-to-move-in property

The most lucrative thing about picking a ready-to-move-in property, is that they are totally exempted from GST. But major condition to be fulfilled along is that the project must have Completion Certificate in place. Such project/property buyers need to pay only the stamp duty and registration charges, which comes out to around 7 - 8% of the total cost of the property. Since such statutory charges are paid by the buyer in lump sum, ready-to-move-in properties offer a good value proposition for anyone purchasing a new home, in addition to benefits such as seeing the actual property they will live in and moving immediately into the new property thereby saving on rental income.

Common provision

Though the current charges made by the government under the levy, stamp duty is 5-8% of the property cost registration taxes, one can certainly claim tax deductions, under Section 80C of the Income Tax Act, 1961. Buyers can claim a maximum of Rs 1.5 lakh as tax deduction, by fulfilling various laid down conditions.

For example: Exemption on a property can be availed only if it is a fully constructed property, taxes paid are in the same year as that of claim and the last but most important is that the purchased property must be for self-use only.

REDUCE COSTS

• Buying a read-to-move in property can help buyers avoid GST completely
   
• Builders whose residential projects are incomplete will have the option to choose between old GST rates and new ones for under-construction residential projects

The writer is chief financial officer, ART Housing Finance