Tag Archives: Buying A Home

OTHER CHARGES WHEN BUYING A HOUSE

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When you start your property search, you will be amazed by the extra charges involved in buying a house or investing in property. There are two options: buying a ready-to-move-in property or an under-construction property. However, most people prefer to buy a ready-to-move-in property because it is less risky than an under-construction one. So, let’s assume that a property is coated at Rs. 3000 per square foot—this is its basic rate—but there are also other charges on top of that that people often fail to consider and that can be more than 40% to 50%. Let’s discuss all the additional charges so that you can make an informed decision about the total price of any given property before agreeing to purchase it. 

Let’s consider an example

Suppose a property’s basic price rate is Rs. 45 lakhs. When we make the final payment for this property, it will be around Rs. 58 – 67.5 lakhs—which includes the basic price of the property and the extra charges. We will discuss all these charges in detail below:

First comes the basic charge. It is the charge excluding all the extra costs. Before RERA Act came into force, properties used to be sold in the super built-up areas; after the enactment of the RERA Act, properties are supposed to be sold based on the carpet area. For example, if the property has a carpet area of 1500 square feet and the rate per square foot is Rs. 3000, then its total essential cost would be Rs. 45 lacks. And this is just the essential cost; you will also have to pay multiple charges for it, as mentioned below.

PLC (PREFERENTIAL LOCATION CHARGES) –  PLC is charged according to the property’s location. Like; a corner flat, park-facing, sea-facing, lower floors, or higher floors. For example, sea-facing view residences have higher PLC charges than non-sea-facing. Therefore, if you own any such property there is a PLC charge coated. Generally, PLC charges are Rs 150-200 per square foot. 

PARKING CHARGES – When you buy a property, you will be charged a parking fee of 5-7% of the base price of the flat. For example, if you purchase a property for Rs. 45 lakhs, you will be charged Rs. 2 to 2.5 lakhs for the parking facility. 

INFRASTRUCTURE DEVELOPMENT CHARGES (IDC) – An infrastructure charge usually consists of complete internal infrastructure within a complex. For example, water and electricity supply, as well as sewage treatment plants may be charged separately. Developers usually charge these services together because it costs less to do so. However, if we add them together in one place according to IDC’s input-demand curve, there will be an IDC charge added at around 6% of the base price of the flat or house. 

EXTERNAL DEVELOPMENT CHARGES (EDC) – In some cities, there is also an external development charge. For example, in Gurgaon and Faridabad. This charge goes to the government and includes the infrastructure of a complex—for instance; road facilities, sewage, water, and electricity. The EDC charges are applied to all these expenses so it is approx. 5% of the base price of a flat. And here if we talk about their total cost, IDC and EDC are charged about Rs. 300 to 400 per square foot. 

CORPUS FUND/ IFMS – Builders collect corpus funds, also called IFMS. It is interest-free maintenance security, similar to an emergency fund, and not like regular monthly maintenance. To purchase a property costing Rs. 45 lakhs, builders can collect from Rs. 50,000 to Rs. 1,00,000. 

POWER BACK-UP – The next charge for power backup is provided to each flat on a per KVA basis. The backup is provided from 3KVA to 5KVA, ranging from 1 lakh to 1.5 lakhs.

AMENITIES AND CLUB CHARGE – These charges apply to luxury flats with a clubhouse, swimming pool, and gym. The developer will charge you for these amenities at a lump sum of Rs. 50,000 to Rs. 1.5 lakhs.

STAMP DUTY AND REGISTRATION CHARGES – In this case, stamp duty varies from state to state. So you must pay the stamp duty according to the state. Therefore, stamp duty and registration charges are 5-10% of the property value.

GST – In an under-constructed property, both stamp duty and GST are levied where GST is 18% on ⅔ of the property cost. Therefore, the effective GST rate is 12%.

BROKERAGE – Most deals for resale property or ready-to-move-in property are closed through a real estate agent or broker, who charges a 1-2% fee on the property’s final value. 

GST on Flat Purchase: A Guide for Home-Buyers

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GST, or the Goods and Services Tax, on home purchases, flats, and apartments is one of the many taxes buyers must pay when purchasing a home. 

In this article, we look at how the GST affects real estate and how it affects homebuyers and flat purchases in general. In addition, we’ll talk about the GST rate on flat purchases and the GST rate on land purchases in 2022.

GST on flats 

On February 24, 2019, the 33rd GST Council Meeting introduced new GST rates that will go into effect on April 1st for residential flat purchases. 

The new proposed GST rate for flat purchases for residential (real estate) transactions is as follows: 

  1. 5% GST charges on a flat purchase will be paid on residential properties outside the affordable housing segment without an input tax credit (ITC).
  2. A 1% GST without an ITC will apply to residential properties in the affordable housing segment. 

The GST on under-constructed flat purchase rates is 12%. The sale of completed homes or the resale of older properties is exempt from the GST for flat purchases. Under the current GST framework for buying flats, builders receive an input tax credit on goods from suppliers or contractors, intending to pass it along to homebuyers. As a result, the current GST on flat purchase systems concerning real estate may alter. 

Input Tax Credit (ITC) 

Understanding input tax credits (ITCs) is crucial before learning about the GST. You can use the ITC to reduce the output tax you pay. You can only pay the final Rs 200 in taxes if you claim an input tax credit of Rs 300. The GST Act permits producers, suppliers, agents, aggregators, e-commerce operators, etc., if the tax on your final product (the output) is Rs. 500 and the tax paid on the purchases (the input) to make the final product is Rs. 

Utilizing the GST Input Tax Credit

Before claiming the ITC, keep the following things in mind:

  1. You must possess the tax invoice for the purchase or the debit note issued by the registered dealer. 
  2. You should have received all the goods and services. 
  3. The supplier must pay the government tax on your purchases in cash or by claiming input credit. 
  4. GST returns filed by suppliers 
  5. The supplier has uploaded the invoice for their GSTR-1, which must reflect in the GSTR-2B of the company.

The positive impact of GST on flat purchase 

  1. Low-Cost Construction:  GST on a flat will lower the rate of things like cement, steel, and other building materials, resulting in dramatically lower construction costs. Lower real estate prices will eventually help middle-class buyers. 
  2. ITC (Integrated Taxation Solution): A unified tax base is critical in the real estate market, but recently builders and developers have been taxed even on the raw materials they purchase. GST on purchases solves these problems by unifying all taxes. 
  3. Zero income rate: The real estate sector’s fiscal operation is not subject to VAT or service tax rules. 

In 2023, how do you calculate the GST on a flat purchase?

Starting on April 1, 2023, GST is applicable on the purchase of an apartment. And if you ever find yourself in a situation where you need to figure out how much GST you will have to pay on a flat purchase, follow these steps: 

Steps for Calculating GST on a Flat Purchase in 2023 

  1. Calculate the apartment’s total cost before GST is applied. It involves accounting for all additional costs like stamp duty, registration, and legal fees.  
  2. Add 5% GST to get the total price. 
  3. The amount after the GST deduction from the total will be your final payment. 

It’s important to remember that this only applies to apartments purchased starting on April 1, 2023. For any flats purchased before April 1st, no GST will apply to the purchase price. 

With the aid of this guide, estimate the amount of GST you’ll have to pay when buying your next apartment and guarantee a smooth transaction!

How do I avoid GST on flat-rate purchases?

When purchasing a flat, you can avoid paying GST by 

  1. Purchase a completed and constructed flat. 
  2. Purchase a flat that has an occupancy certification. 
  3. Purchase a second-hand flat.

The amount of GST enabled for building services would be less if the land’s worth was removed from the total weight. If you want to know how to avoid GST on flat purchases, the deduction would always be beneficial when the value of the land represents a percentage of the total value greater than 33.33 percent. 

The impact of GST on the real estate market 

The GST has been one of the most significant reforms in the real estate market. The developer already pays customs duty, VAT, excise duty, legal expenses, service taxes, permission fees, etc., hampering their tax processes and burdening homeowners. 

The GST simplified the property tax. The new GST regime increased the real estate tax rate to 12% and lowered property buyers’ burdens. Taxation impacts developers and property purchasers. The 34th Council meeting held in 2019 announced new GST rates.

Conclusion

In general, the subject of GST on flat purchases is difficult to understand. When purchasing a flat, buyers must be aware of the fundamentals of GST and seek current advice from a reputable expert to ensure that they’re making the right choices. 

Be sure to understand any applicable GST at the time of a flat purchase, as well as what the GST rate will be and how to calculate the GST payable. It’s essential to confirm your eligibility for any applicable GST exemptions. 

Home buyers can ensure that their purchase is compliant and legal, fully understand GST on flat purchases, and protect themselves from any unpleasant surprises in the future by carefully reading this guide and doing additional research. 

All you need to know about the sale deed

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What are the steps in the process of buying a property?

Let’s first discuss the steps in buying a property. When purchasing a property, the first step is negotiating the price with the seller. To confirm the booking, you must pay an advance to the seller. A builder must first pay a 10% deposit and sign a booking form before purchasing a property. After the buyer and seller agree on terms, they sign a contract that includes a time period for payment (generally two to three months). But this is not a sale deed. It’s important to note the information, facts and details in a sale deed and here’s everything you need to know.

A sale is completed when the seller transfers ownership rights to the buyer. The deed of sale is drawn up and registered with a specific state authority, making it valid.

How is a Sale Deed Executed? – RoofandFloor Blog

What is Sale deed?

The deed of sale is a legal and final document transferring ownership of a property. It describes the terms of the sale and is signed by both the buyer and the seller. Depending on its purpose, a contract of sale may also be called a contract of sale or a contract of sale mortgage. A bill of sale is governed by the common law, the Contracts Act, the Transfer of Property Act, etc. It uses certain terms that are standard across all jurisdictions, but certain details relate more specifically to the Indian context such as consideration (usually the same as the amount paid).

Benefits of Sale deed:

  1. Protects Parties – A well drafted deed protects both the buyer and the seller by preventing ambiguity and minimizing legal risks.
  2. Defines The Area – Buyers find it helpful to specify the square footage and locations of properties on paper.
  3. A sale deed is a legal document that concludes a sale. It is enforceable by law.

Clauses / Elements in the Sale deed you should know:

The sale deed includes the following details:

  1. Details of the party – The details of the party include the names, ages, and addresses for both buyers and sellers.
  2. Details of the property – The location of the property, a description of the property, and construction details.
  3. Payment details – Payment details will show you the price of your property. It also lists the payment mode like a credit card (Visa, MasterCard, Discover) or direct transfer from a bank account.
  4. Handing over the original papers of the property and the possession details.
  5. No dues on the property – On the property, no dues, such as loans, tax, liability, and other dues.
  6. Indemnity clause –  An indemnity clause in a sale deed provides protection for the buyer’s interests. It is important to draft the document with care to avoid future disputes. Indemnity clauses under the sale deed seek compensation if there are any losses or expenses in the future.

What is the process for executing a Sale deed?

  1. Draft sale deed – To execute a sale deed, you need to first draft a sale deed. This document records all of the property owner’s rights, duties, and interests in the property. This includes encumbrances, liens, loans, taxes, mortgages and deeds for neighboring properties if they do not belong to the same legal entity.
  2. Pay Stamp Duty – Stamp duty is a tax paid to the Indian government on the sale of real estate. It is usually paid by the buyer and varies from state to state. For more details see our detailed video on stamp duty.
  3. Signed – Both buyer and seller must sign the sales deed. This document ensures that they have both agreed to the terms of the sale transaction. The deed must be registered within four months of the date it was signed in order to be valid.
  4. Registered – A sale deed serves as both proof of ownership and an essential legal document required for taxation purposes. It is an affidavit signed by both the seller and buyer. This is submitted to the revenue department when registering property under several tax laws. It must be registered within 4 months of signing the document. If this deadline is exceeded, you risk losing your right to purchase the property.
  5. The seller gives the original documents – The seller delivers the original documents and the buyer pays to execute the sale deed.

The following are the important, procedural, and legal terms you should know about sale deed if you are planning to sell your house.