Purchase of immovable property in India

Purchasing immovable property in India, whether for personal use or investment purposes, is an exciting yet complex process. Many people turn to financing options like Loan Against Property (LAP) to fund their property purchase. With competitive interest rates and flexible repayment terms, a loan against property from Bajaj Finance can help you leverage the value of your existing property to acquire a new one. However, before you begin your property search, it is important to understand the various legal and financial aspects involved in purchasing immovable property in India. This guide will walk you through the key steps, from legal requirements to taxes and necessary documentation, helping you make an informed decision.

Purchase of immovable property in India

Buying immovable property in India involves understanding legal, financial, and procedural requirements. Both Indian residents and Non-Resident Indians (NRIs) can purchase property. Key steps include verifying property titles, paying stamp duty, and completing registration formalities. It's important to ensure all documentation, such as the sale deed and encumbrance certificate, is in place. Property taxes, including stamp duty and GST on under-construction properties, must also be considered. For those needing financing, amortgage loan can be a flexible option to fund the purchase. Always seek legal advice to ensure compliance.

Legal requirements for purchasing immovable property

The first step in purchasing property in India is understanding the legal requirements involved. Both residents and non-resident Indians (NRIs) are permitted to buy property in India, but there are specific rules for each group.

Resident Indians: Any Indian citizen who is a resident of India can purchase immovable property. The buyer must be at least 18 years old and have the necessary legal capacity to enter into a contract.

Non-Resident Indians (NRIs): NRIs are allowed to buy property in India, subject to certain restrictions. They can purchase residential or commercial properties, but they are not allowed to acquire agricultural land or farmhouses unless they inherit the property. NRIs must also ensure they comply with the Reserve Bank of India’s (RBI) guidelines for foreign investments.

It is essential to consult with a legal expert or property adviser to ensure compliance with all laws, as violating these rules can lead to penalties or the invalidation of the property purchase.

Tax implications on property purchases

When purchasing property in India, there are several taxes that you must be aware of. These taxes can impact the overall cost of your property purchase and should be factored into your budget.

1. Property tax

Once you own a property, you are required to pay property tax to the local municipal corporation. The amount of property tax is determined based on factors such as the size of the property, location, and its market value. This tax is usually payable annually and varies by state.

1. Stamp duty and registration fees

Stamp duty is a mandatory tax that is charged when the property is transferred from the seller to the buyer. The stamp duty rate varies from state to state, typically ranging between 5-7% of the property’s value. Additionally, you will need to pay registration fees for the property transfer process, which is typically 1% of the property value.

1. Capital gains tax on property transactions

Capital gains tax applies when you sell a property in India. If you sell a property within two years of purchase, it is considered a short-term capital gain and is taxed at 15%. If you hold the property for over two years, it is considered a long-term capital gain and is taxed at 20% with indexation benefits.

Important documentation for property purchase

To complete a property transaction smoothly, you must have certain documents in place. Here is a list of essential documents that you will need to prepare and verify before buying a property:

Sale deed: The primary document that proves the ownership of the property. It must be registered with the local sub-registrar office.

Title deed: Confirms that the seller is the legitimate owner of the property and has the right to sell it.

NOC from society (if applicable): If the property is part of a housing society, you will need a No Objection Certificate (NOC) from the society management.

Encumbrance certificate: A legal document that shows the property's transaction history and confirms that it is free from legal liabilities.

Property tax receipts: These documents verify that the property taxes have been paid regularly.

Occupancy Certificate (OC): This certifies that the building complies with the approved building plan and has been constructed as per the required norms.

RERA registration (for new properties): For newly constructed properties, the Real Estate Regulatory Authority (RERA) registration number is necessary to ensure transparency and protection against fraudulent practices.

GST on property purchases

Goods and Services Tax (GST) applies to the sale of new residential properties under certain conditions. When you buy an under-construction property, GST is levied on the sale price. The GST rate for residential properties is typically 5%, while it is 12% for commercial properties. However, GST does not apply to the sale of completed or ready-to-move-in properties.

Repatriation rules for NRIs buying property in India

For non-resident Indians (NRIs) who wish to repatriate the sale proceeds from the sale of a property back to their country of residence, there are specific guidelines to follow. According to RBI regulations, NRIs can repatriate the sale amount of up to USD 1 million per financial year, provided the property was purchased using foreign exchange or through a bank loan.

Loan Against Property: A financing option

If you need additional funds to purchase property, consider opting for aBajaj Finserv Loan Against Property. This is a secured loan where you can borrow against the value of your existing property. Bajaj Finance offers attractive interest rates, flexible repayment options, and quick processing, making it an ideal choice for individuals looking to fund their property purchase. Whether you are buying residential or commercial property, loan against property can provide the financial flexibility you need.

Conclusion

Purchasing immovable property in India involves understanding a range of legal, financial, and tax-related factors. From ensuring that all documentation is to understanding the taxes involved, it is crucial to do thorough research and seek professional advice where necessary. Whether you are a resident or an NRI, compliance with the law is key to a smooth property transaction. And if you need additional financing, a Loan Against Property can be a viable option to help fund your purchase. With careful planning and the right support, you can make your property ownership dreams in India a reality.