If you own property in India or are thinking of doing so, it’s crucial to get your head around what you’ll have to pay in terms of tax, whether you’re living in India or reside abroad. Here’s a look at what you need to know in terms of Indian property tax.
Broadly speaking, property tax is any tax you have to pay on real estate. Property taxes, in general, can be divided into two groups:
- Sales taxes
- Maintenance taxe
Don’t be confused: in India, there's a specific tax which is referred to as ‘property tax’, also known as ‘house tax’. This is a maintenance tax: you have to pay it every year. It’s explained in more detail in one section below. But in fact, it’s just one of many obligatory taxes that are concerned with property ownership.
Before you get ahead of yourself, you’d better check whether you’re eligible to buy Indian property.
If you’re not Indian, and not a resident in India, you can’t legally own property in the country. To count as a resident, you need to be in the country for at least 183 days of the financial year, which means that those on a tourist visa are excluded.
If you’re a resident, however, you can buy property, whether or not you’re an Indian national. And if you’re an Indian national or of Indian origin then you’re allowed to buy property even if you live abroad - unless you’ve become a citizen of Afghanistan, Bangladesh, Bhutan, China, Iran, Nepal, Pakistan or Sri Lanka, in which case you aren’t.
The buyer of a property tends to pay most of the sales taxes, although capital gains tax is paid by the seller. As for maintenance taxes, the owner is generally responsible, even if it’s rented out. There’s more information on all this below.
There are a number of different sales taxes to bear in mind when buying or selling a property in India, and two maintenance taxes you should know about too. Here’s a look at each of them.
When you’re buying or selling a house, you’ll have the following taxes to pay:
- Stamp duty
- Registration charges
- Service tax on property that's under construction
- TDS (tax deducted at source) on high-value property
- Capital gains tax
Stamp duty is the principal tax paid when you buy a property.
- Stamp duty is paid to the state government.
- The rate of stamp duty varies quite widely between states, between 3% and 10%.
- The rate also varies depending on the property itself, factoring in location, age, and other criteria.
- It must be paid promptly when the purchase is made, or you’ll have to pay interest on the value at 2% a month.
- It’s generally paid by the buyer, not the seller.
The registration charge is payable when you record the property purchase with a registering officer.
- The buyer pays
- The rate is set by the state, but it’s generally around 1%
You’ll probably have to pay service tax if you buy a property that’s under construction.
- It’s paid to the central government, not local authorities.
- It’s charged at either 3.75% or 4.5% of the property value - the higher rate if the property is particularly large or expensive.
- You also pay 15% service tax on certain construction charges.
- The buyer pays this tax when they pay the developer from whom they're buying. The developer passes it on to the government.
- There are certain exemptions to service tax.
Value-added tax is paid in conjunction with the service tax on properties that are under construction - but only in certain states.
- It’s paid by the buyer
- It’s paid in the same way as the service tax
- While it can vary between states, it might be around 1% of the value of the property
On particularly expensive property, the buyer also has to pay a certain amount of income tax that's ‘deducted at source’. It’s therefore known as TDS (tax deducted at source).
- It’s paid by the buyer
- TDS is payable on property transactions of over Rs 50,000,000
- The rate is 1% of the transaction value - the sale price before other taxes are deducted.
- It’s deducted at source, so the buyer takes the amount out of the purchase price and pays it directly to the income tax department.
- When you file your tax return, make sure this TDS is taken into consideration: it should be taken off your tax bill, and you may even be eligible for a refund.
In India as in many countries, this is a tax that’s paid if you make a profit selling something valuable like a house.
- This tax is paid by the seller
- It’s calculated by taking the sale price and subtracting the price that it was originally acquired for, as well as improvement costs.
- If you’ve owned the property for long-term, more than 2 years, the acquisition and improvement costs are adjusted for inflation according to officially indexed figures. For short-term capital gains, the original costs are used unadjusted.
- Short-term capital gains are taxed at 15%, plus some extra fees.
- Long-term capital gains are taxed at 20%, plus some extra fees.
- If you invest a long-term capital gain in another property, you might be eligible for an exemption.
|Any property||Property under construction only||High-value property only||Buyer||Seller||Cost|
|Stamp duty||✓||✓||3%- 10%|
|Registration charges||✓||✓||Approx. 1%|
|Service tax||✓||✓||3.75% or 4.5% on property value, 15% on other costs|
|Capital gains||✓||✓||Short term capital gains: Income tax rateLong-term capital gains: 20%|
There are several ongoing taxes you have to pay that relate to Indian property:
- ‘Property tax’
- Rental income tax
There used to be a wealth tax, too, in which property played a part - but this is no longer charged.
Everything discussed on this page can be considered a type of property tax, but in India, the term ‘property tax’ also refers to a particular tax that homeowners have to pay on a regular basis.
The specific tax known as ‘property tax’ or ‘house tax’ is a maintenance tax paid every year or half-year. This tax is collected and used by the local authorities, not the central government - it’s spent on basic services like roads and lighting.
Because it’s a local tax, details of exactly how it works vary from place to place. It’s always based on an official estimate of your property’s value, although exactly how that estimate is calculated also varies. The valuation will likely be based on factors including:
- Type - residential, commercial, land
- Amenities included
- Age of the property owner
- Size of property
- Owner-occupied or rented out
The rate that’s charged on this valuation is determined by the local administration.
It changes a lot between the states and administrations.
If you have more than one property, there’s a rental tax to pay on those properties you don’t live in.
- You have to pay this tax even if you don’t actually rent your second home out
- Legally you can only occupy one residence
- It’s calculated based on the property’s actual rental value, or the official rental value as calculated by the authorities - whichever is higher.
- That value can be reduced by 30% to factor in charges for repairs and rent collection.
- You can also deduct loan repayments if they’ve been used for the property, and you can deduct property tax payments too.
- It’s charged as part of income tax, so the rate varies depending on numerous criteria.
|Primary residence||Secondary residence||Owner pays||Occupier pays|
|Rental income tax||✓||✓|
There are plenty of taxes to pay on property in India, but that’s not the end of the story in terms of costs. There are always many more fees to consider when buying or selling - or even maintaining - property.
In India, estate agent fees and legal costs are two of the most considerable of the extra fees you may face when buying or selling.
- Stamp duty and registration fees are both income tax-deductible.
- If you’re renting, you may also be able to claim an income tax deduction for rental costs.
- When paying tax on rental income, you can deduct various expenses including property tax.
- Check the rules around capital gains tax carefully as the calculation can be complex and there are various exemptions.
(Source 23 December 2017)
Check with the notary for exact dates on when the various sales taxes are due. Some, like service tax, you’ll have to pay as part of a larger bill; others are standalone bills to pay.
Property tax payment methods are different according to exactly where you live: make sure to find out how it works in your local area. Rental tax is paid as part of your income tax bill.
Each sales tax is a little different, so again the notary is the person to ask. You can, however, pay income tax online.
As for ‘property tax’, different places have their own methods. Online payment is often available.
Online payments are often less hassle than more old-fashioned methods, letting you sort out your bills in moments, from the comfort of home. But the process might still get complicated if you handle money in more than one country - getting money into India to pay your taxes can make even a simple online payment complex, if you make the transfer through a bank.
If you use TransferWise to move your money into India, an international transaction becomes as easy as a local one, and you’ll always get the real, mid-market exchange rate - the only fair rate. The fee charged is small and always stated upfront, so you always know how much it costs. It’s generally a lot cheaper than transferring through a bank, where they often mark the exchange rate up by as much as 4-5% - take a look now to see if you could save money with TransferWise.
To pay your tax bill with TransferWise, you’ll need to check if the government or local authority will accept payment from a third party. If not, you can always just transfer the money to your local account in India first.
Taxes can be a minefield, especially when you’re working internationally, so it pays to know what you’re dealing with. Good luck with your Indian property!
|This publication is provided for general information purposes only and is not intended to cover every aspect of the topics which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content is the publication is accurate, complete or up to date.|
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