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Published on 8/31/2016 3:53:00 PM
The curious case of taxes and duties
If you are among the many home-buyers looking for a property, it's important that you are well-versed with the nuances of different taxes and duties and ways through which they will impact your cash flow management.

When one sets out for home-buying, one en counters several interesting people and situations on the way there's that wide-eyed broker, the shrewd developer, the stern-bespectacled banker, so on and so forth. Then there's the search for those amenities like a club house, swimming pool, gym, among others. In the process, one often willingly overlooks the dreary aspect of the process such as taxes and duties. Yet, it goes without saying that taxes and duties are a significant part of the entire package that a lot of Indians tend to ignore. And especially in Mumbai, one needs to be aware of at least two major indirect taxes Service Tax (ST) and the Value Added Tax (VAT), according to Prashanth Bhat, partner of BMR & Associates LLP.

While charges like stamp duty gets levied, irrespective of an under-construction property or otherwise, service tax and VAT get imposed only when a home-buyer invests in an under-construction property. Bhat says that builders or developers in Mumbai charge the service tax under the construction of complex services on 30 percent of the sale value of the units, which is around 4.5 percent (including cess) of the unit value (including land value)."Service tax is charged at the full rate of 15 percent (including applicable cess) on other charges collected separately (such as preferential location charges, club charges, among others)," adds Bhat.

Experts explain that the legal acquisition of a property requires the home-owner to complete the registration process and pay the stamp duty to the governing authorities. This process of documentation clearly indicates the title of the property.

Taxes and duties levied while home-buying in Mumbai: Gautam Saraf, managing director Mumbai,

Cushman & Wakefield lists out the taxes and duties that come into play while buying a home:

Stamp duty:

If the sale agreement is not properly stamped, it will not be tenable in the court of law. The rate of stamp duty in Maharashtra is payable at five percent of the agreement value or the Ready Reckoner (RR) rate, whichever is higher.

Registration charges:

The registration fee in Maharashtra is usually payable at one percent of the agreement value with a maximum cap of Rs 30,000.

Service tax:

Service tax is levied by the central government on under construction properties for the services provided by real estate developers involving the sale of building complexes, civil structures, or part thereof.

a) If the value of the house property is more than 10 million, then the service tax chargeable is 4.5 percent of the sale consideration and 15 percent of floor rise and other charges;.

b) If the value of the house property is less than 10 million, then the service tax chargeable is 3.75 percent of the sale consideration and 15 percent of floor rise and other charges.

Value added tax (vat):

This tax is not payable unless it is purchased from the developer after the completion of the construction and receipt of occupancy certificate in case of resale transactions. The levy of VAT is a state subject and currently chargeable at one percent of the agreement value in Ma harashtra.

Further, if the value of the property is more than Rs 50 lakh, the buyer is required to deduct the TDS and remit the same to the government. Upon such deduction and remittance to the government, the buyer is mandated to submit a duly signed TDS certificate Form 16B to the developer.

Experts point out that while buying an under-construction home, all types of taxes are applicable i.e. stamp duty, registration charges, service tax and VAT.On the other hand, in case of a ready-to move-in home, which already has an occupancy certificate, the buyer is liable to pay only stamp duty and registration charges.

Nishant Agarwal, MD, Avighna India informs, "In case of affordable housing, service tax is not applicable. All other taxes and duties remain the same wherein the amount may vary, considering the property price and size of the apartment. A buyer has to pay a total of approximately 10.5 percent of the property value.

These different taxes comprise of:

VAT: one percent;

Service tax: 4.5 percent;

Stamp duty: five per cent;

Registration charge: one percent or Rs 30,000 whichever is less."

Recently, the High Court of Delhi ordered that service tax cannot be charged from home-buyers for the purchase of under-construction apartments, if the land value is already included in the total value of the home. "However, the service tax department is yet to issue any notification clarification on this judgement; so the developer is liable to pay the relevant service tax to the department," says Agarwal.

The judgement currently applies to home purchases affected within the jurisdiction of the Delhi High Court only.