Finance Loans

A Brief Introduction to Property Tax and TDS on Property

Property tax also referred to as land tax or millage tax refers to yearly taxation where a property or landowner needs to deposit a specified amount of money to their municipalities or state government. The amount and percentage of land tax that your property qualifies for vary depending on the state or region of its location.

Apart from this millage tax, new property buyers are also eligible to pay TDS on property at a rate of 1% on a property’s value.

Types of property 

Before you learn more about house tax in Delhi or any other major Indian metropolitan city, you should understand the various classifications of property in India. 

Listed below are the divisions –

  • Personal property – These are any personal assets that you own. For instance, land or building.
  • Land – This refers to a plot or empty land that you own. Keep in mind that such a property does not include any construction on the owned plot.
  • Improvements on a land – This is a type of property where you are modifying or creating aspects on an owned plot, increasing its overall value in the process. For instance, construction of buildings is an example of this type of property.

Types of property taxes

In India, you only need to bear taxes on a property in two cases. These are – 

  • Land or millage tax

This is a yearly tax that property owners must pay. The rate of this taxation is determined by the local government or Municipal Corporation. This tax is calculated based on the valuation of the property.

The formula for the property tax calculation is –

Property tax = Built-up area x base value x type of building x floor factor x category of use x age factor.

Property tax receipts may be necessary to avail mortgage loans like a loan against property. 

A few HFCs require minimum documents like mortgage documents, OVDs for KYC, proof of income, etc. when borrowers apply for a loan against property.   

Reputed HFCs like Bajaj Housing Finance Limited provide such loans at attractive rate of interest and terms. Borrowers can use such a loan for multiple purposes. 

The company also provides pre-approved offers to simplify the loan application process. Check your pre-approved offers by providing your phone number and name.   

  • TDS on property sale/purchase
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When you sell your immovable asset, the government imposes TDS on the entire amount or the first instalment. The rate of deduction is limited to 1%. When discussing TDS on property, one must understand that the buyer is eligible to pay this tax on behalf of the seller.

Moreover, as a buyer, you have to pay TDS on property purchase above 50 lacs. Also, the tax liability is not limited to 1% of the sum exceeding Rs.50 lakh, but on the whole amount. 

For instance, if you buy a property at Rs.55 lakh, you would need to pay 1% TDS on the entire Rs.55 lakh and not on the Rs.5 lakh exceeding the minimum requirement for taxation.

How are the buyer and seller responsible for TDS on property?

The property buyer must undertake a few steps to ensure TDS applicability after such a purchase of immovable property. 

Here are some points he/she needs to perform –

  • Deduct TDS at 1% while paying the property seller.
  • Collect PAN details of the seller.
  • Fill up Form No. 26QB by providing all essential data of the property purchase.
  • Deposit the TDS amount through online payment during the submission of Form 26QB.

If you fail to clear the TDS payment during the form submission, you can initiate the same at any authorised financial institution. Nevertheless, you must do so within 7 days from the form submission.

A property seller needs to perform the following actions for TDS on purchase of property.

  • Provide their PAN details to the property buyer.
  • Ensure reimbursement of TDS amount while filing their taxes at the end of the financial year.

While TDS can be paid via the official portal of TIN NSDL or a financial institution, property taxes can be paid online or offline. Taxpayers can visit the concerned municipal corporation/council or its official website to pay the latter.