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How to Save On Taxes When Buying a Property in Mumbai?

If you have already bought a property and are planning to buy another one you might be well aware of the taxes that are involved when you buy a property. For first time buyers, we will first look into the taxes that you will be dealing with and then get into the ways you can save taxes on your new flat purchase. Unlike previously when you have to pay different taxes on different things, the government has now unified all the taxes under the banner of GST. The cost of the property you buy from the real estate builder in Mumbai will be divided into two parts, the first being the money you pay to the real estate developer in Mumbai and the other part would be the money you pay to the government in form of taxes. The majority of your money would be going to the real estate company in Mumbai however the money you pay to the government isn’t a small amount either. You would only need to pay taxes on properties that are under construction. So what taxes can you expect on your property? Let’s have a look.

Taxes for under-construction properties

1.  Stamp Duty:

The stamp duty varies from state to state and you can expect to pay stamp duty of 5-7% of the total cost of the property. If you are buying a residential property in Goregaon the stamp duty would be around 6%. Stamp duty is necessary as it registers the house under your name.

2.  Registration Charges:

You will be paying around 1% registration fee to your local registrar to register yourself as the owner of the property.

3. GST:

Under the new tax-regime implemented in 2017, under-construction properties are currently taxed at 12% on the base cost of residential property in Goregaon or other parts of Mumbai; however, the government and real estate developers in Mumbai have been lobbying to reduce the GST charges for the purchase so make sure you check the percentage the GST is at when you plan on buying a residential property in Goregaon or other suburbs of Mumbai.

4. TDS (tax deducted at source):

If your property that you are investing in costs less than Rs.50 lakh you will be paying TDS on your purchase of that property to the real estate developer in Mumbai you are buying the property from. Now the developer will pay this money to the government within seven days of your purchase.

Now that you know various taxes that would apply to you let us look at some ways you can save money.

1. Tax deductions on stamp duty & registration charges:

You can expect tax deductions on the 5-7% stamp duty that you would be paying if you buy a residential property in Goregaon. You can avail of these deductions under Section 80C of the Income Tax Act; 1961. You can now expect a Rs. 1.5 lakh deduction on your income tax. The tax deductions should be availed the same year that you purchase the property and it can only be availed on properties that are ready to move.

2.  Tax deductions on home loans:

If you take out a home loan you can further expect tax deductions under Section 24, 80C and 80EE of the I.T. Act for repayment on both the principal and interest amount after fulfilling certain pre-conditions:

3. Tax deductions on interest repayment:

You can avail of a maximum of Rs. 2 lakh deduction for the interest portion for the home loan if you are staying in it Under Section 24. However, if you rent out the residential property in Goregaon there is no upper limit to the tax deduction.

4. Tax deductions on principal repayment:

You can also claim an Rs. 1.5 lakh deduction when you pay back your principal amount Under Section 80C. You cannot sell the property for at least 5 years after you apply for this deduction or else the tax will be added to your account in the subsequent financial year.

5.  An additional benefit for first-time homebuyers:

You can also avail of another Rs. 50,000 benefits if you are a first-time buyer under section 80EE. The loan amount should not exceed Rs. 35 lakhs and the value of the property should not exceed Rs. 50 lakhs

6. Tax deductions on joint home loans:

In case of a joint loan, each loan holder can claim a deduction of Rs. 2 lakh for interest paid and up to Rs. 1.5 lakh for the principal amount under Section 80C, provided they are the co-owners of the property purchased via the loan.

7.  The additional tax benefit for jointly-owned property:

In case of a jointly-owned property – usually husband and wife – one can save on taxes quite effectively. For instance, if the wife is not working, the rental income can be divided in the proportion of ownership of the property and thus save on taxes. This can also be beneficial in a scenario wherein both are working but are in different tax slabs.

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