Blame the govt: One third of your home purchase cost is just taxes

Did you know that over 35 percent of your real estate purchase cost comprises just various indirect taxes?

According to a KPMG report titled ‘Housing for all by 2022," over one-third of all housing costs comprises various taxes, but the budgetary support the sector receives from the governmentis only in the form of tax incentivesand allocation towards housingdevelopment.

The table below shows how the government may actually be contributing to the high price you pay for your home:

1. In order to give legal status to the property purchase transaction, home buyers have to pay stamp duty on the “Sale Agreement”. The rate of stamp duty varies from state to state. In Maharashtra, stamp duty is payable at 5 percent on “Agreement Value” or the Ready Reckoner rate, whichever is higher.

2. Registration is the process of recording the contents of a document with a registering officer.If the flat is not registered, it cannot be produced as evidence in a court of law.The registration fee again varies from state to state and in Maharashtra it is 1 percent of the agreement value. However, it is subject to a maximum limit of Rs 30,000.

3. VAT: Some states also levy value added tax on property. In Maharashtra, it stands at 1 percent.

4.Service tax: This is a central government levy on under construction property and is payable when the installments towards purchase of property are made to the developer. It isnot payable if the flat is purchased from the developer after the construction is completed and a completion certificate is received. This is one of the most controversial taxes.

Apart from these, there areother indirect taxes like excise, customs, and service taxon the materials and other inputs used in construction. Though these taxes are paid by the developer, they are usually passed on to the property buyer in the form of higher prices.

Rationalisation of these taxescan actuallyhelp make property prices more affordableand enable higher flow of investment in the sector.

However, the bigger issue in house prices is the politician-builder nexus that bottles up urban land supplies, jacking up prices for home buyers.