Although there are many forms of taxes in India like income tax, sales tax, etc, yet the property tax is the single largest source of revenue for the Government. The tax paid is utilized to make roads, sewer systems, maintenance of parks, developments in infrastructure, et al.
India’s property tax rates have been rationalized in the last 10-15 years as the entire taxation system has undergone a change. These changes have evolved the system and raised it to prevailing international standards as the tax rates have been rationalized and tax laws simplified resulting in better compliance, ease of tax payment, better enforcement and most of all, collections.
The revenue that can be generated from property taxation depends directly on the two main components of a property tax: the tax base (assessed value of real property interests on reserve) and the tax rate. The rate of taxation is applied to the assessed value of real property to arrive at the amount of tax levied. The rates bylaw determines the rate at which each class of interests on reserve is to be taxed.
India with a growing population and a workforce will always have increasing requirements in real estate, be it residential, commercial, industrial, retail or entertainment and as such the Indian Government encourages investments in properties with ever-evolving measures.
NRIs/foreigners are permitted to own property in India in most of the categories. However, there are certain categories like agricultural land, land for housing project wherein NRIs/foreigners are specifically not entitled to own property. The laws applicable to NRIs would be Income Tax Act, Wealth Tax Act, Gift Tax Act, Transfer of Property Act and FEMA among others and the implications would depend upon the facts of each case.
Important Taxes levied by Central and State Governments:
Capital Gains Tax: Capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of property. Stamp Duties: Stamp duty is a tax, much like the sales tax and income tax that are collected by the Government. If you want to know the market value of your property and the stamp duty amount on it, you need to find out the stamp duty amount applicable to you as per the market value. For example, 3% stamp duty plus additional 5% duty in form of surcharge under the Delhi Municipal Corporate Act, 1957. Rental Income: Rental income has to be taxed under the head 'Income from house property’. Deductions are available under Section 23 and Section 24 of the Act. It may be noted that a deduction is available for repairs, whether incurred or not. Actual expenses are deductible, except for municipal rate. Goods and Service Tax: The goods and services tax (GST) is likely to result in a reduction in property prices. The 13th Finance Commission has recommended levying GST on all newly constructed property for first sale, allowing credit to the developer for input tax (incurred on construction material) paid at the time of construction and including stamp duty under GST to facilitate input credit. In case the stamp duty is subsumed into GST, the developers would be able to claim credit of the stamp duty paid on the purchase of land to be used for development of real estate. The developer would also be able to claim credit of the taxes paid on inputs and input services used for construction of real estate for payment of stamp duty thus reducing the cascading effect and improve liquidity.
In case of immovable property being sold within a period of 36 months from the acquisition, the gain arising from there would be short-term capital gain and liability for taxation would be at 30%. In case the immovable property that has been held for more than 36 months, the gain would be long-term capital gain and the tax thereon would be at the rate of 20%.
The Finance Minister, Mr. Pranab Mukherjee besides announcing an interest subsidy of 1% for one year on housing loans of up to Rs. 10 lakh for properties worth less than Rs. 20 lakh also allowed developers of housing projects a tax holiday under section 80 IB (10) of the Income Tax Act on profits from projects approved between April 1, 2007 and March 31, 2008, provided the projects are completed on or before March 31, 2012. He also conveyed to the developers that the benefits of this tax break must pass on to the consumers. Accordingly, stamp duty value in case of immovable property and fair market value in case of movable property too will be computed to encourage healthy movement in this most crucial sector.
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