Property tax is a tax which is paid for a property by an individual or group of people owning it. This tax is of different types about which we will talk about this blog in detail.
What we are gonna learn
- What is property tax? and why it’s important to pay?
- What are the types of property taxes in India?
- Who has to pay property tax in India?
What is property tax? and why it is important to pay?
Property tax is also known as house tax, which is to be paid on real estate by owners to municipal authorities such as municipal corporations and municipalities.
Tax paid by you is used for maintenance of the real estate and the locality, like doing take care of the local civil amenities like roads, sewage systems, lighting, maintenance of parks, and other facilities.
It is usually paid for all types of real estate, including residential and commercial buildings, houses and plots.
This tax is based on the price of property and area. So owners have to pay the tax calculated by the local government authorities.
What are the types of property taxes in India?
There are a number of taxes, there are different types of sales taxes you have to bear when buying or selling a real estate and there are two types of maintenance taxes too.
Types of property tax in India
There are two types of property tax in India, both have subtypes of the taxes
- Sales tax
- Maintainance tax
When you are buying or selling a property, you have to pay the taxes mentioned below
- Stamp duty
- Registration charges
- Service tax on under-construction property
- TDS on high value property
- Capital gains tax
Stamp duty is the tax paid when you are buying a property. It can vary from state to state, in some states stamp duty is very high and in some states it is very low.
- Stamp duty tax is paid to the state government
- Stamp duty varies from 3% to 9% state to state
- It can vary for men and women, for women the tax is low as compared to men.
- It is paid when you are purchasing a property.
- Its paid by buyer
Registration charges are the charges you have to pay when you are registering your property to the registrar office
- It is paid by the buyer
- The registration charges are also set by the state government, but its generally around 1% of the value of the property.
You have to pay the service tax if you buy an under-construction property.
- Its paid to central government, similarly like TDS
- It can be charged between 3.75% to 4.5% of the value of the property. Its rate depends on the size and price of property
- Buyer has to pay the service tax, but buyers can’t directly pay this buyer has to give it to the builder and builder pays this tax to the central government
- There are some exemptions for service tax.
The full form of VAT is Value added tax and its also paid on under-construction properties. VAT is applicable in certain states only.
- Its paid by buyer but this is applicable in certain states only.
- Its also paid in the same way as service tax by giving it to builder and builder will pay the tax
- It is near to 1% of the value of the property
TDS tax deducted at source shall be paid on expensive properties
- it is paid to center government, like service tax.
- But this is charged on expensive property which are over the value of 50,000,000
- It is paid by the buyer
- The rate of TDS is 1% of the value of property
- When you file for income tax returns, make sure that the TDS is taken into consideration, you may be eligible for tax returns.
Capital sales tax
Capital sales tax is a tax, you have to pay if you make a profit after selling property
- This tax is paid by the seller because seller had made profit on this.
- It is calculated by taking the sale price and subtracting the cost price (the price at which it was purchased) as well as the improvement and additional costs.
- Short term capital gains are taxed at 15% + you have to pay some extra fees
- Long term capital gains are taxed at 20% + you have to pay some extra fees
You have to pay two types of maintenance tax
- Property tax
- Rental income tax
Tax known as property tax or house tax is a maintenance tax that is paid every year or half a year.
This tax is paid to local authorities,so this tax don’t go to the central government, it is used for basic services like roads, sewage system, street light, and maintenance of parks.
As this is a local tax so it varies from place to place.
Basically it’s calculated on the price of the property and the area, its calculation also varies from place to place. Factors affecting the calculation of property tax are
- Type – residential, commercial or agricultural
- Which amenities are included
- Size of the property
The rates paid for property tax are calculated by local government after this assessment, because this tax is paid to local authorities.
This is a local tax so this varies a lot on state to state and municipality to municipality bases.
Rental income tax
If you have multiple properties, then you have to pay tax on those where you don’t live
- You have to pay the tax no matter you have given your house on rent or not because you are owing that real-estate.
- If we look legally then you can only live in one house
- This is calculated based upon the rent value of the property in particular area, or the rent value calculated by the municipal authorities and which is higher will be charged.
- If you are paying loan EMI you can deduct from it, and you can also deduct the property tax you are paying.
- Tax is paid as part of income tax,so these rates vary based on various income levels and multiple requirements from person to individual.
Who has to pay property tax in India?
The buyer of a real-estate has to pay mostly all types of sales tax because all the taxes have to be paid by owner.
From stamp duty, TDS, VAT, service tax, then registration tax all have to bear by the buyer. But seller has to pay the capital tax, if they have profit in there real-estate after deducting the improvement growth, for short term capital gain sellers have to pay 15% + fees and for long term 20% + fees.
There are two types of maintenance tax that too have to be paid by the owner of the real-estate. So that’s why its said to be so important.
Punjab is one of the state where stamp duty is very high.
But there is a large difference between the male and female stamp duty.
Before that, it was 6% for men 5% for joint and 4% for women.
But registration fee is 1% for all persons. So there is not any difference based on gender in this.
VAT is also 1%m, service tax is the same in all the states as this tax goes to center government around 3.75-4.50%.
Property tax is of 2 types sales tax and maintenance tax. almost all kind of sales tax is to be bear by the buyer except of capital tax. all the maintenance tax is paid by the owner.
Some sales taxes go to the center government and some go to state government. almost all the maintenance taxes go to local government authorities like municipalities.
Typically , there are two ways you can pay property tax on an annual or a half-year basis. So when the bill comes, you have to pay the tax and you can pay property tax in advance. And you can also pay tax online.
The tax you pay to the municipal corporations in the form of property tax is used to serve various social, civil and infrastructural services. Good roads, better schools, and good hospitals just because of property tax. It’s important because it serves all these services and it helps the country to grow.
If you pay taxes on your personal properties, yes its deductible in income tax and if you pay TDS for any property than you can make sure that it will be shown in your income tax as TDS is a part of income tax and it is deductible and you can take tax return with it.
Property taxes are paid by two types half-yearly or annually. You can either pay the taxes on a gap of 1 year and you can pay the taxes after 6 months. You can pay the taxes in advance also
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