You’ve found the property. The price fits your budget. The location is decent. You’re ready to close the deal.
Then your CA mentions capital gains tax. Your lawyer talks about stamp duty. The bank asks for tax receipts. Suddenly, you’re sitting there with a calculator at 11 PM, trying to figure out where all this extra money is supposed to come from.
Here’s what nobody tells you upfront: buying or selling property in India isn’t just about the sale price. There’s a whole layer of taxes that hit you at different stages, some before you buy, some while you own it, and some when you sell. And if you don’t plan for them, they’ll catch you off guard when you can least afford it.
This isn’t about turning you into a tax expert. It’s about knowing enough to avoid the mistakes that cost people lakhs every year.
Most buyers focus on the EMI. Smart buyers focus on the full picture.
The Taxes that hit you when you’re buying
Let’s start with the obvious one: you’re not just paying the builder or seller. You’re paying the government too.
Stamp duty and registration charges
Every state has its own rate. Maharashtra charges around 5-7%. Karnataka is closer to 5%. Delhi sits between 4-6%, depending on whether you’re male or female (yes, gender matters here, women usually get a discount).
Registration charges are typically 1% of the property value, with a cap depending on the state.
If you’re buying a ₹50 lakh flat in Mumbai, you’re looking at ₹3-4 lakh just for stamp duty and registration. That’s cash you need upfront, separate from your down payment.
People mess this up because they budget for the property price and the down payment, but forget this part entirely.
GST on under-construction property
- Residential property (non-affordable): 5% GST
- Affordable housing: 1% GST
- Ready-to-move property: No GST
So if you’re buying an under-construction flat worth ₹60 lakh, add another ₹3 lakh for GST. That’s not optional. That’s part of the deal.
Completed properties don’t attract GST. Only the ones still being built do.
TDS Deduction (If Property Value Exceeds ₹50 Lakh)
This one’s tricky because it’s not your tax, it’s the seller’s. But it’s your job to deduct it. If the property costs more than ₹50 lakh, you need to deduct 1% TDS from the payment and deposit it with the government within 30 days.
Miss this, and you’re liable for the amount plus penalties. The seller won’t remind you. The builder won’t remind you. It’s on you to know.
The Taxes that hit you while you own the property
Once you’ve bought the place, the tax story doesn’t end. It just shifts.
Property tax (Municipal tax)
This goes to your local municipal corporation. The amount depends on where the property is, how big it is, and whether it’s residential or commercial.
In tier-2 cities, it’s usually a few thousand rupees a year. In metros, especially in posh areas, it can go higher.
It’s not a massive amount, but it’s recurring. And if you don’t pay it, the penalties pile up fast.
Income tax on rental income
If you’re renting the property out, that rental income is taxable. But you also get deductions:
- 30% standard deduction on the annual rent (no bills needed)
- Home loan interest (if applicable)
- Municipal taxes paid
Even if the property is sitting empty, the tax department can still tax you on “deemed rent” if you own more than two properties. They assume you could be renting it out, so they tax you on what you could have earned.
People forget this part. They think no rent = no tax. That’s not always true.
Income tax benefits on self-occupied property
If you’re living in the property and it’s your only home, you don’t pay tax on notional rent. But if you have a home loan, you can claim:
- Up to ₹2 lakh deduction on interest paid (Section 24b)
- Up to ₹1.5 lakh deduction on principal repayment (Section 80C)
- Additional ₹1.5 lakh on interest if it’s your first home and the loan was taken after April 2019 (Section 80EEA)
Most salaried people miss out on thousands every year because they don’t claim these properly. Or they claim some of it but not all of it.
A single conversation with a CA before filing your returns can save you lakhs over the loan tenure.
The Taxes that hit you when you’re selling
This is where people get hit the hardest because they don’t see it coming.
Capital gains tax: Short-term vs long-term
The profit you make when selling property is taxable. How much depends on how long you’ve held it.
Short-term capital gains (STCG):
- If you sell within 2 years of purchase
- Profit is added to your income
- Taxed at your regular income tax slab (could be 30% or more)
Long-term capital gains (LTCG):
- If you sell after holding for 2+ years
- Profit is taxed at 20%
- You get indexation benefit (adjusts for inflation, reduces taxable gain)
Let’s say you bought a property in 2018 for ₹40 lakh. You sell it in 2025 for ₹70 lakh. Your profit is ₹30 lakh.
Without indexation, you’d pay 20% tax on ₹30 lakh = ₹6 lakh.
With indexation (using the Cost Inflation Index), your purchase price gets adjusted for inflation. Let’s say it becomes ₹58 lakh. Now your taxable gain is only ₹12 lakh. You pay ₹2.4 lakh in tax.
That’s a ₹3.6 lakh difference just because of indexation.
Most people don’t even know this exists. So they either overpay or panic when the CA explains it later.
How to save capital gains tax
You can avoid paying LTCG tax if you reinvest the profit:
- Section 54: Buy another residential property within 2 years (or construct within 3 years). Full exemption if you reinvest an amount equal to or more than the gain.
- Section 54EC: Invest in specified bonds (NHAI, REC) within 6 months. Maximum exemption is ₹50 lakh. You have to hold the bonds for 5 years.
- Section 54F: If you’re selling non-residential property (land, commercial space) and buying a residential one, you can claim exemption. But you can’t own more than one house at the time of sale.
The catch? Timelines are strict. Miss them, and the exemption is gone.
People sell the property, get the money, spend some of it and then realize they could’ve saved lakhs in tax if they’d planned. By then, it’s too late.
The mistakes that cost people lakhs (And how to avoid them)
Not budgeting for stamp duty
You think you need ₹10 lakh for the down payment. But you actually need ₹13-14 lakh because of stamp duty and registration. Now you’re stuck taking a top-up loan at a higher interest rate or borrowing from family.
Fix it: Add 6-8% to your property budget for these costs before you start looking.
Forgetting TDS when buying
You pay the seller the full ₹60 lakh. Then the tax department sends a notice because you didn’t deduct ₹60,000 as TDS. Now you’re liable for it, plus penalties and interest.
Fix it: If the property is over ₹50 lakh, deduct 1% TDS before paying. Deposit it within 30 days. Get a TDS certificate. Keep it safe.
Not claiming all eligible deductions
You’re paying ₹40,000 EMI every month. But you’re only claiming ₹1 lakh deduction on interest when you could be claiming ₹2 lakh. Over 20 years, that’s a lot of money left on the table.
Fix it: Talk to a CA before filing your returns. Even a ₹5,000 consultation fee can save you ₹50,000+ in taxes every year.
Selling too early and triggering STCG
You bought a property 18 months ago. You got a job offer in another city, so you sell. Now you’re paying 30% tax on the profit because it’s short-term capital gains.
If you’d waited 6 more months, it would’ve been long-term at 20% with indexation. Your tax bill would’ve been half.
Fix it: Unless it’s urgent, wait until you cross the 2-year mark before selling.
Not reinvesting capital gains in time
You sold a property, made a ₹50 lakh profit. You planned to buy another one, but got busy. Two years passed. Now that the Section 54 exemption is gone, you owe ₹10 lakh in tax.
Fix it: Start looking for the next property before you close the sale. Don’t wait until the money hits your account.
A real example: How bad timing cost someone ₹3 Lakh
Amit bought a flat in Gurgaon in 2021 for ₹70 lakh. In 2023, he got a promotion and decided to upgrade. He sold the flat for ₹85 lakh.
He thought he’d made ₹15 lakh profit. Clean deal.
But because he sold within 2 years, it was short-term capital gains. At his 30% tax slab, he owed ₹4.5 lakh in taxes.
He hadn’t budgeted for it. The money was already spent on the new property’s down payment. Now he had to take a personal loan to pay the tax bill.
If he’d waited just 4 more months, it would’ve been long-term gains. With indexation, his tax would’ve been around ₹1.5 lakh. He would’ve saved ₹3 lakh just by timing it better.
Small decisions. Big money.
What you should actually do
Before buying
Add 6-8% to your budget for stamp duty, registration, and GST. Confirm TDS requirements if the property is over ₹50 lakh. Don’t assume the broker or builder will handle this, they won’t.
While owning
Claim all deductions on home loan interest and principal. Keep property tax receipts. If you’re renting it out, track expenses and claim the 30% standard deduction.
Before selling
Figure out if it’s STCG or LTCG. Understand indexation. Plan reinvestment under Section 54 if you want to save tax. Don’t spend the money until you’ve calculated the tax liability.
Always
Talk to a CA before making big moves. It’s not expensive. And it’s a lot cheaper than paying penalties or missing out on lakhs in deductions.
Real estate taxation in India isn’t simple. But it’s not impossible either.
You just need to know what applies to you, when it applies, and how to plan for it.
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