When you are buying your first home you are excited! You find your perfect place, imagine setting it up according to your taste and start preparing to move in. Then someone mentions stamp duty and registration charges and all of a sudden the numbers begin to appear differently.

The majority of new home buyers only focus on the cost of the property and home loan EMI. A lot of buyers only find out about the legal expenses at the end of the whole process. Stamp duty and registration charges are mandatory and missing them out can disrupt your finances.

This guide outlines what these are, how they work and how can buyers prepare for these charges.

What are stamp duty and registration charges?

When purchasing a property in India, paying the seller is only one part of the process. The government requires a legal document for this transaction.

• Stamp duty is a fee paid to the state government to legally validate the sale agreement. Without it, it has no legal value
• Registration charges are paid to legally record the property in your name. This takes place at the local sub registrar office.

To understand it in a more simple way, we can say that stamp duty binds the agreement legally and registration charges put the property in your name in the official records.

How much do you have to pay?

There isn’t one specific number that fits in all situations. The amount that you will be spending depends on some of the following factors:

• Value of the property
• Location where you are buying (State and the city)
• Whether it is registered under a man’s name, a woman’s name or jointly
• Residential or commercial use

Generally, stamp duty is most states is around 4 and 7 percent of the property value. The registration fee is around 1 percent.

It might not sound a lot right now but on a higher value property this amount becomes very significant.

Why these charges hit first time buyers severely

If this is your first property, there are chances that these charges are going to feel even heavier. Deposit, brokerage, interiors, moving costs and now the legal fees.

Another aspect that people understand late is that home loans cover the cost of the property and not these legal charges. Stamp duty and registration charges are paid separately from savings. It has been observed that many buyers who planned their EMI still faced difficulties as they overlooked this aspect.

Can you save money on stamp duty and registration

You obviously can’t avoid these charges but there are possible ways in which you can lessen the burden.

Income Tax Benefit

There is at least some relief regarding the taxes. If you are purchasing a residential property, the stamp duty and registration charges you pay can be claimed under Section 80C. This comes under the total limit of 1.5 lakh annually along with your other investments. The deduction can only be claimed in the year the payment is made.

State Level Concessions

Some states offer lower stamp duty rates for a specific category of buyers. For e.g.

• Female buyers get a reduced rate
• Co owning with a woman may get a reduced rate in some states
• Extra allowances are announced from time to time for specific buyers depending on local government policies

These advantages depend on state regulations and it is important to always refer to the recent guidelines.

How you can plan better and avoid last minute surprises

This part is a lot easier if you look at it in the early stage and not hurry at the last moment.

• Stamp duty and registration charges are not same everywhere. You should check the rates in your city.
• The state government calculations provided above are genuinely helpful. 
• Do not assume that the home loan will cover these expenses. A lot of buyers ultimately pay for this separately.
• Keep the amount prepared in advance to avoid panic at the last moment 
• If you are buying near the end of the financial year then a conversation with a tax advisor may help you plan better

Conclusion

Stamp duty and registration charges are not the most thrilling part of your home buying journey but they are inevitable. The first time buyers get stressed as they do not have the awareness in advance. Once you understand all the aspects and start preparing then it becomes just another step of the process.

Buying your first home is an extremely big milestone and understanding what to expect can make the whole journey a lot easier.