All You Need to Know About Property Taxes

November 23rd, 2018

If you own a property or are thinking of buying one then you would have come across the term property taxes. Basically, property taxes or house taxes are levied on real estate assets like a piece of land, a house, a flat in a building or a commercial complex. No land irrespective of its location is exempted from property tax. Now you might be thinking what these taxes are for since you own and maintain the property at your expenses. These property taxes serve as a source of income to the local institutions that manage roadways, sewage, and other civil amenities around your property.

The property tax to be paid to the government varies from state to state in India. The calculation of the taxes is dependent on an array of factors some of which are the area, size of the property, and its construction. You will be liable for paying property taxes on an annual or semi-annual basis.

Taxes Levied on Sale, Renting and Leasing of Property

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If you were thinking that only owning a property incurs tax, then you are mistaken. Taxes are levied while selling, leasing, renting, and even purchasing an immovable property.

Service Tax

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Service tax is applicable for when you want to rent or lease a property. Renting or leasing a real estate for commercial purposes is seen as providing a service and therefore you will be liable for paying taxes on the rent you receive. Service charge is applicable when you rent a vacant land, a property for commercial purposes, spaces for mobile towers or vending machines, and land for convention centres.

However, there are times when you can be exempted from paying service tax while renting a property. The circumstances under which a rented property is exempted from tax under the Indian law is when the immovable property is rented to a religious body or by a religious body or it is rented to an educational institution imparting knowledge or training students in any skill or subject. Notably, you will not fall under the purview of exemption in case you let out your property to commercial coaching or training centres.

One notable fact that you need to keep in mind is that service charges are not applicable when selling a fully constructed space. However, a service tax ranging from 3.75% to 4.5% is applicable while selling under construction properties.

TDS

Tax

TDS or Tax Deducted at Source implies when you sell or purchase a property that incurs a transaction of over ₹50 lakhs. The tax is to be paid by the person selling the property. So, if you are purchasing a property, you are required to deduct 1% of the total amount at which the property is sold and pay the deducted amount to the municipal corporation. In case the role is reversed, you will be receiving an amount which is 1% less than the one you agreed upon.

Capital Gains tax

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Capital gain is the difference between the amount in which the property is being sold and the amount in which it was bought. The gain that is obtained is taxed. There are two types of capital gains:

Short Term Capital Gain: When you own an immovable property for three years or less, the gain incurred while selling the property is termed as short-term capital gain. In such a case, the monetary gain will be included in your income which will be taxed under the income tax filing routine at the end of the fiscal year.

Long Term Capital Gain: If you hold the immovable property for over three years, the gain incurred on selling the property is termed as long-term capital gain. In this case, you will have to pay 20% of the gain in taxes to the government.

These are some of the taxes that come into picture while renting, leasing, or selling a property. Other than these, VAT and stamp duty on a property are some other forms of taxes that you may incur while buying or selling a property. You can also study section 24 under the Income Tax Act to know more about the tax exemptions from property taxes.

Having spent 30 years in the real estate sector, Adarsh Developers have a deep understanding of the customers’ pain points, and understanding tax implications is a big one. This article is written to address the tax implications of renting, buying and leasing homes. Adarsh Developers believe in understanding the needs of their customers to develop properties that are unmatched in quality and make sure they have a place called home.

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