When you buy a house, you do not just pay the property’s value. Several other charges increase your house’s acquisition price. It’s important that you budget for these additional costs. More so if you are on a tight budget and have an equated monthly instalment (EMI) to pay on your home loan.
Goods and Service Tax (GST)
If you are buying an under-construction property, one of the important costs that you cannot avoid is the Goods and Service Tax (GST). “The GST rate on residential properties is 1 percent for affordable housing and 5 percent for other than affordable housing projects,” says Vivek Jalan, partner, Tax Connect Advisory Services LLP.
Affordable houses mean houses in metro cities with up to 60 square meter carpet area and up to Rs 45 Lakhs in value and in non-metro mean houses with up to 90 square meter carpet area and up to Rs 45 Lakhs in value, explained Jalan.
So, remember that GST has to be paid in case of an under-construction property. Once the residential complex is fully constructed and Occupancy Certificate (OPC) is obtained by the developer, no GST is charged. “There is no GST on sale of a completed property as it is neither considered as goods nor services,” says Jalan.
Some argue that you could buy fully constructed property to avoid payment of GST. However, this may not be beneficial as the price of a property typically escalates with progress in construction.
Stamp duty
GST is not the only tax that the government charges home buyers, you have to pay stamp duty and registration fees as well to get the property documents registered in your name. Stamp duty and registration fees vary from state to state, it can be up to 8 per cent of the cost of property. For example, it could be as high as Rs 4 lakh for Rs 50 lakh residential property.
However, some state governments give rebates or concessions if property gets registered in the name of a female. For instance; In Delhi, the stamp duty is 4 per cent if the property is registered in the name of a female and 6 per cent if the property gets registered in the name of a male. The stamp duty in Delhi works out to be 5 per cent if the property is registered jointly. Besides, the state government charges a registration fee. In Delhi it is one per cent of the cost of the property.
A buyer needs to find out the exact amount towards stamp duty and registration charges and plan accordingly.
Transfer charge
If you are buying an apartment in a housing society you may have to pay transfer charges. If it’s an under-construction property, typically transfer charges are levied by the developer. It is typically between Rs 100-Rs 250 per square feet. Even for a completed property you may need to pay transfer charges to society, especially in the case of cooperative group housing society (CGHS).
Besides that, in some cities like Noida in the National Capital Region (NCR) you even need to pay transfer charges if you are buying a completed property in the resale market. These charges go to government authorities.
Brokerage
If you are buying a residential property, especially in the resale market, with help of a property agent, be ready to pay commission. Property agents usually charge 1 to 2 per cent of the cost of the property for their services. However, it is often negotiable. In case of buying property in the primary market from a developer, agents do not charge from home buyers as sellers (developers) pay higher commission compared to resale market.
Legal fees
While buying a property it is very important to do proper due diligence of property documents. However, there are no fixed charges for such assistance. “India’s legal market is fragmented and there is no standardisation in rates charged by legal service providers,” says Mani Gupta, partner, Sarthak Advocates & Solicitors.
There are various factors based on which the charges for legal service vary. Gupta says that the cost depends on the scope of the due diligence to be carried out by the lawyers, nature and size of property and number of intervening transfers. It also depends location of the property documents; sometimes it is easier to locate documents of properties in municipal towns and metropolitans, but other times it is time-consuming. “Records are often not well-organised at the village level,” Gupta adds.
The bigger or more prestigious the law firm, the higher are its charges, as opposed to an individual practitioner. You may also need assistance from legal experts for registration work at the sub-registrar office. A conservative estimate for legal assistance could easily cost Rs 25,000 or upwards.
Other miscellaneous costs
The list of additional costs goes on for instance if you are intended to take a home loan to finance your home purchase, you may have to pay loan processing charges, which will depend on loan amount and varies from lender to lender. Then there are costs for loan and property insurance premium, shifting expenses and so on. Cost of transfer and deposit fee for utility connections, charges of mutations and so on also need to be paid. Not to forget the cost of necessary repairs and renovations, especially if you are buying a resale property.
In case of raw and unfurnished houses, there is cost of interior, furniture and fittings which typically varies based on home buyers’ aspiration and budget. However, a simple interior work in a 2BHK apartment can easily cost a few lakhs.
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