Buying Property in India? 3 Taxes That Affect Your Purchase Cost

In India, buying a property is a major financial commitment, and the property price is only one part of the total cost. Several mandatory taxes can significantly increase your overall outflow. Understanding these taxes in advance helps you plan your budget effectively and avoid last-minute surprises during registration or possession. Three key taxes commonly apply when purchasing a property in India—Goods and Services Tax (GST), Tax Deducted at Source (TDS), and Annual Property Tax. Let’s take a closer look at each and understand how they impact your property purchase cost.

1. Goods and Services Tax (GST) on Property Purchase

GST is one of the most important taxes applicable when buying a property, but it does not apply to all types of real estate transactions. The applicability of GST depends on whether the property is under construction or ready to move in.

When is GST Applicable?

GST is charged only on under-construction properties. If you are buying a ready-to-move-in property that has already received an Occupancy Certificate (OC) and Completion Certificate (CC), or if you are purchasing a resale property, GST is not applicable.

GST Rates on Residential Properties

• Affordable housing: GST is charged at 1% (without input tax credit)
• Non-affordable housing: GST is charged at 5% (without input tax credit)

Definition of Affordable Housing

A property qualifies as affordable housing if it meets the following criteria:

• Metro cities:
  • Carpet area up to 60 square meters
  • Property value up to Rs.45 lakh
    
• Non-metro cities:
  • Carpet area up to 90 square meters
  • Property value up to Rs.45 lakh

If the property exceeds these limits, it is categorized as non-affordable housing and attracts a higher GST rate.

Why Does GST Matter for Homebuyers?

GST can significantly increase the cost of an under-construction property. Since it is calculated on the property value and must be paid during construction-linked installments, buyers should factor it into their cash flow planning. Understanding GST applicability also helps buyers compare under-construction and ready-to-move-in properties more effectively.

2. Tax Deducted at Source (TDS) on Buying Property

Another important tax that buyers often overlook is Tax Deducted at Source (TDS). This tax is governed by Section 194-IA of the Income Tax Act, 1961 and applies to the purchase of immovable property (other than agricultural land).

When is TDS Applicable?

TDS is applicable only if the property value exceeds Rs.50 lakh. If the transaction value is Rs.50 lakh or below, the buyer is not required to deduct TDS.

TDS Rate and Calculation

• TDS rate: 1%
• TDS is deducted on the higher of the transaction value or the government circle rate

For example, if the agreement value is Rs.52 lakh but the circle rate is Rs.55 lakh, TDS will be calculated on Rs.55 lakh.

Buyer’s Responsibility

The buyer must:

• Deduct 1% TDS from the payment made to the seller
• Deposit the deducted amount with the government

This obligation lies entirely with the buyer, even if the seller is an individual or a developer.

Importance of TDS Compliance

Non-compliance or late deposit of TDS can attract penalties and interest. Since TDS directly impacts the payment flow between buyer and seller, it is essential to plan this deduction properly and ensure timely compliance.

3. Annual Property Tax

Once you own a property, your tax responsibility does not end with GST or TDS. Annual Property Tax is a recurring tax that every property owner must pay.

Who Collects Property Tax?

Property tax is collected by the Municipal Corporation or local civic authority of the area where the property is located. It applies to:

• Residential properties
• Commercial properties
• Vacant land

Factors Affecting Property Tax

The amount of property tax payable varies depending on several factors, including:

• Type of property (residential or commercial)
• Location and city
• Age of the property
• Built-up area or carpet area

Since different cities follow different valuation methods, property tax rates can vary significantly from one location to another.

Why Property Tax Is Important?

Property tax revenue is used to fund essential urban services such as roads, drainage, water supply, sanitation, and public infrastructure. Non-payment of property tax can result in penalties, interest, and even legal action by the municipal authority.

Why Buyers Must Budget for Property Taxes?

Property ownership comes with more than just the base price. Taxes like GST, TDS, and annual property tax can collectively form a significant portion of the total cost. Since these charges are mandatory and are not covered under home loans, buyers must arrange funds separately.

Failing to account for these taxes early can disrupt financial planning and delay property registration or possession. On the other hand, being aware of these taxes ensures financial readiness, smoother transactions, and peace of mind.

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