How to Save on Taxes When Buying Property in India

The Indian government has made strides in simplifying property transactions with reforms like RERA and GST, aiming to streamline the home-buying process. While these reforms have made property deals more transparent and efficient, they also offer various opportunities for tax savings. If you’re planning to buy property in India, it’s important to understand the taxes involved and how you can benefit from tax deductions to make your property purchase more affordable.

How to Save on Taxes When Buying Property in India

Taxes You Need to Pay When Buying Property in India

When buying a property in India, the taxes you will need to pay depend on whether the property is under construction or ready for possession. Here’s an overview of the taxes typically levied:

Taxes on Under-Construction Properties

• For under-construction properties, buyers are required to pay the following:
• GST (Goods and Services Tax): A 12% GST is levied on the base cost of under-construction properties.
• Stamp Duty and Registration Fees: These charges are required to make the property transaction legal and are typically paid at the district sub-registrar’s office.

Taxes on Ready-To-Move-In Properties

• Unlike under-construction properties, ready-to-move-in properties are exempt from GST under the new tax laws. However, buyers still need to pay stamp duty and registration charges.
• GST Savings: By purchasing a ready property, buyers save 12% on GST compared to an under-construction property.

How to Save Taxes When Buying Property in India

While property purchases in India can be costly, several tax-saving opportunities are available for homebuyers. Here’s how you can reduce your tax burden when buying a property:

1. Tax Relief Under the Affordable Housing Scheme

The government’s Housing for All by 2022 initiative offers tax benefits to those purchasing homes under the affordable housing scheme.

• GST Reduction: Buyers in the Pradhan Mantri Awas Yojana (PMAY) can enjoy a reduced GST of 8% instead of the standard 12%.
• Subsidy Schemes: Various credit-linked subsidy schemes are available for buyers in the Economically Weaker Section (EWS), Lower Income Group (LIG), Middle Income Group-I (MIG-I), and Middle Income Group-II (MIG-II), offering significant savings.

2. Tax Deductions on Registration Charges and Stamp Duty

Stamp duty and registration fees usually range from 5-7% of the property price. However, Section 80C of the Income Tax Act allows homebuyers to claim a tax deduction of up to ₹1.5 lakh on these charges, provided certain conditions are met.

3. Tax Deduction on Home Loan Interest

If you are financing your home through a loan, you can save on taxes by claiming a deduction on the interest paid.

Section 24: Homebuyers can claim a tax deduction of up to ₹2 lakh on interest paid on home loans for self-occupied properties.

4. Tax Deductions on Joint Home Loans

• Taking a joint home loan can maximize your tax savings.
• Interest Deduction: Each loan holder can claim a deduction of up to ₹2 lakh on interest paid.
• Principal Deduction: Each borrower is also entitled to a deduction of up to ₹1.5 lakh on the principal repayment, under Section 80C of the Income Tax Act.

5. Tax Deduction on Principal Repayment

Buyers who plan to repay a portion of the principal amount can claim a deduction of up to ₹1.5 lakh under Section 80C. However, this deduction is only valid if the buyer retains the property for at least 5 years. Selling the property before this period will add the deduction amount to the taxable income of the year the property is sold.

Conclusion

Whether you're buying property in Delhi, Mumbai, or any other city in India, these tax-saving options can significantly reduce the cost of your new home. By taking advantage of government schemes, home loan deductions, and other tax benefits, you can make your dream property more affordable. Understanding and planning your finances properly can help you save on taxes and make homeownership a reality without straining your budget.