4. Hidden Costs and Taxes

When deciding on how much money you need to buy your home, take these taxes and additional costs into account

Hidden Costs and Taxes

Home buying requires a high level of financial preparedness. In places like Mumbai, Bengaluru, Delhi-NCR and other metro cities, the EMI on home loan is normally very high due to higher property prices. Therefore, if you are financially not ready, then, your whole plan of buying a home could go awry. Ensure you have the eligibility to get a loan, and are financially ready to not just pay the EMI but also raise the margin money

Here are the regular expenses you will encounter while buying a home: Each month, you will repay the loan by paying an Equated Monthly Installment, an EMI. The EMI consists of both the principal (the amount you borrowed) and interest (the fee the bank charges to loan the cash). Initially, your EMI will mostly be to repay the interest. As time passes, the principal repayment component increases until your loan is paid off. Your repayment plan affects your tax benefits since there are different tax benefits you can claim for interest and principal repayme

TAX - Stamp duty is usually 5% of the property value (and penalty of 2% every month if not paid) /news/obligation-of-stamp-duty-during-property-registration
TAX - Registration is about 1% of the property value, subject to a maximum of Rs. 30,000, done within four months from the date of implementation, after the stamp duty
Done within four months from the date of implementation, after the stamp duty. /news/laws-related-registration-property-transactions-india
Brokerage is usually between 1% and 2% of the transaction value. /news/buying-property-choose-licenced-broker
TAX - VAT / Cess is paid by the Buyer and can be levied retrospectively. Check with your lawyer. VAT is paid to cover materials used for construction (which are classified under not-immovable goods). As of April 1, 2015, service tax is charged at 14% on a portion of the sale value, depending on the size and cost of the house. For properties less than Rs.1Cr. it’s 3.5% of the price, and over Rs. 1Cr. it’s 4.2%, but differs from state to state. Facilities such as parking and maintenance of amenities will also draw service tax. However, single residential units like an independent villa or a bungalow are exempted from service tax. If the developer has completed a project and has obtained all required approvals and even an Occupancy Certificate (OC) before selling you an apartment, there isn’t any service involved so there is no service tax. Similarly, you don’t have to pay value added tax (VAT) in such a scenario.
TAX - TDS (Tax Deducted at Source) the Buyer must deduct a tax of 1% on the entire amount , for properties valued at Rs. 50 lakh or more; this can go up to 20% if the seller doesn’t share his PAN details. If payment is in installments, tax has to be deducted with each instalment. TDS is also applicable if you’ve bought an under-construction project on or before June 1, 2013 and where part payment is outstanding it must be deducted on the outstanding amount.
Transfer fees and other applicable fees to initiate the Society Share Certificate transfer for a resale property.
Society for a resale property, there is a one-time transfer fee of Rs. 500 and an entrance fee of Rs. 100.
Legal fees appear as a percentage of the total property value. A good lawyer may charge around Rs. 5,000 to Rs. 10,000.You can also try to verify the paperwork for a project without a lawyer
Home loan costs include principal and interest but can also include processing fee, valuation fee, Pre-payment charges, and miscellaneous fees.
Floor rise is a premium charged for topmost-floors, quoted in rate per sqft, because of better views, less noise, more sunlight, less dust, and no upstairs neighbors. But, it tends to be warmer and may increase electricity bills./news/preferential-location-charges-how-it-impacts-the-price-of-your-property-2
Parking space can’t be sold according to a Supreme Court ruling, beware!
Club membership (gym, pool etc) fees for a lifetime are added to your total cost.
Maintenance costs are quoted in terms of rate per sq ft. Developers usually charge a year’s worth of maintenance in advance. /news/maintenance-charges-that-buyers-need-to-be-aware-of
Interiors are really a matter of personal taste. A modular kitchen costs at least Rs. 1 lakh and there is practically no upper limit.
Second Home: Money you earn from renting out your second home is added to your taxable income.
Second Home: If your house isn’t let out, it is still deemed a let out property (DLOP). The notional value is calculated and the amount is added to your taxable income.
Second Home: If you sell the house, you will have to pay capital gains tax within 3 years it’ll be short term gains taxed at your income tax rate, and if you sell in over 3 years it’ll be 20% - long terms gains tax.
Second Home: The profit you make on a sale is added to your taxable income.

Second Home Buyers

What should I consider before buying a Second Home?

Do a thorough check on a developer’s credentials and reputation.Seek opinions from discussion forums such as IREF.Find out whether leading financial institutions have approved the project and are willing to finance buyers.

Banks may offer less financing on a second home, meaning higher upfront payment.
Since lenders see it as an investment, they may give you a higher interest rate
If you are already paying off loans, the loan amount you’ll get will be smaller
Plan for situations that may hamper your ability to pay your EMIs. A good rule to follow is that your property investments don’t account for more than 50% of the total value of your assets
Check the tax section for tax implications - these are different that on your first home
Consider what’s attractive to renters if you plan to rent it - neighbourhood lifestyle, connectivity, furnishing, and maintenance add to the costs

Stamp Duty

Stamp duties vary from state to state, but the general process is the same.

Stamp duty is paid by the buyer on mortgage deeds, title deeds, sale certificates, conveyance deeds (sale deed), leave and licence deeds, surrender of lease, transfer of lease, property partition deeds, re-conveyance of mortgaged property and gift deeds, among others.
It can be paid on judicial stamp papers,franking, or e-stamping.
Documents on which stamp duty is paid should only be in the name of the buyer.
Stamp duty varies from state to state. It is calculated on the market value or the agreement value of the property (whichever is higher).

Stamp duties vary from state to state, but the general process is the same.
Stamp duty is paid by the buyer on mortgage deeds, title deeds, sale certificates, conveyance deeds (sale deed), leave and licence deeds, surrender of lease, transfer of lease, property partition deeds, re-conveyance of mortgaged property and gift deeds, among others. It can be paid on judicial stamp papers, franking, or e-stamping. Documents on which stamp duty is paid should only be in the name of the buyer.Stamp duty varies from state to state. It is calculated on the market value or the agreement value of the property (whichever is higher).
Under-Construction properties appreciate faster, but ready-to- move flats can earn 1.5% to 2% (of the property value) per annum if you lease it. Pre-Launch properties are found to be attractive for investing despite risks such as project cancellations, regulatory/clearance delays, layout changes and, even illegal offers.

Under Construction properties appreciate faster, but ready-to-move flats can earn 1.5% to 2% (of the property value) per annum if you lease it.Pre-Launch properties are found to be attractive for investing despite risks such as project cancellations, regulatory/clearance delays, layout changes and, even illegal offers.

Tax Benefits

Home buying, and especially loans, have some tax benefits. View the benefits associated with home-buying and loans.

Wealth tax has been abolished from the 2015-16 financial year onwards.
The principal amount repaid on the home loan taken can be deducted from your income up to Rs 1.5 lakhs under Section 80C. This deduction, however, comes with a couple of caveats. You can only avail of this deduction after construction of your house is complete and possession is received, and not while construction is underway. If you have taken a home loan to buy a house that you intend to live in, the interest paid on this loan is eligible for a deduction up to Rs 2 lakhs under Section 24 of the Income Tax Act. This deduction is also available only after you have received possession of the house. Construction must be completed within three years from the end of the financial year in which the loan was taken. The interest paid while the house is under construction, will continue to accumulate. You can claim deduction on this amount for five years after possession. So, if you paid a total interest of Rs 6 lakhs while the house was under construction, you can avail of a deduction of Rs 1.2 lakhs for the next five years after possession.
If you own multiple houses, only one will be considered as self occupied and the others will be deemed to be let out. The interest paid on all the loans with respect to the let out properties can be used to show a loss from property owned, thereby reducing taxable income.
For under-construction property there is no limit to the deduction on the interest you can claim. However, you cannot claim a deduction on the interest paid while your house is still under construction; you can only add the deduction amount (paid before possession) once your house is constructed (even for Pre-EMI loans). After your house is ready and you’ve got possession, the interest paid towards your home loan (while the house was under construction) must be claimed in five equal installments spread over five successive financial years, beginning in the year in which your house was finished.
Tax deduction on stamp duty can be claimed with under-construction property. However, this falls under section 80C of the Income Tax Act and all deductions combined under this section are subject to a maximum of Rs. 1,50,000.
If you are staying in a rental while your purchased house is under construction, you can continue to claim the rent you are paying as a deduction under House Rent Allowance.