Property Tax Laws in India

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When you're buying or selling property, the thought of the taxes you'd be incurring is never far from your mind. You'll need to be aware of several key issues such as exemptions and deductions, before signing that contract. As in other countries, real-estate transactions in India too are controlled by many tax regulations. Here's an overview of what you need to know:

Declare the Value

If you are buying property in India that costs over Rs 25,000, income tax laws require that you declare the value of this property through a special tax form called Form 37 (I). In order to ensure that people declare the correct amount, the tax dept has devised a rule in which they are allowed to auction off the property if the declared amount is exceedingly low, especially in regard to the actual value of the property.

Income Tax Clearance Certificate

If you sell your house or any property, at the time of the sale, you must fill out the Income Tax clearance certificate form Section 230 A. This is to ensure the authorities that you have fully paid the taxes due before the sale of property.

Principal Repayment Reduction

If you decide to repay a portion of the principal amount on your home loan (more than Rs 20,000), then under Section 88, you are eligible for a 20 percent tax deduction. How much is eventually exempt will depend on how much of the home loan principal you decide to pay back.

Capital Gains Tax Exemption

If you sell your home and decide to re-invest the entire proceeds in another residential property within a span of two years, you will be exempt from paying Capital Gains tax.

Stamp Duty

When you purchase and register a property in India, you must pay stamp duty. The amount varies in every state, so this would depend upon where you've made your real estate purchase, but it ranges from 12 to 15 percent. These rates are rather exorbitant, when compared to other developed countries that charge no more than 1 to 2 percent. Some states even require you to pay stamp duty for the second time when the property is being developed.

Property Tax

Property tax is collected annually from owners of properties and is based on the potential of revenue earned when the property that you have purchased is rented out. Even if you don't intend to rent out your property, you still need to pay a property tax that is based on the estimate of current market values.

Read More: How to File Tax on Rental Property in a Different State Than You Live In