When buying property in India, the tax impact changes based on the seller. Purchasing from a builder or developer is treated differently under tax laws compared to buying from an individual owner (resale property). These differences affect GST, income tax benefits, TDS, compliance risk, and overall cost.
1. GST (Goods and Services Tax)
Buying Property from a Builder
GST is applicable only when the property is under construction at the time of purchase.
If you buy an under-construction flat:
- GST is charged at 1Percentage for affordable housing
- GST is charged at 5Percentage for non-affordable housing
- Buyers cannot claim any refund or credit for GST paid
- GST is calculated on the agreement value, not on stamp duty value
If the flat is ready-to-move and has an Occupancy Certificate, then no GST is payable, even if the builder is the seller.
This means GST significantly increases the initial purchase cost when buying from a builder during construction.
Buying Property from an Individual Seller
When you buy a resale property from an individual:
- No GST is applicable
- The transaction is treated purely as a sale of immovable property
- Even if the property is recently built, GST is not charged if an Occupancy Certificate exists
This makes resale properties tax-cheaper upfront compared to under-construction builder properties.
2. TDS (Tax Deducted at Source – Section 194-IA)
For both builder purchases and individual seller purchases, the law is the same.
If the property value exceeds Rs 50 lakh, the buyer must:
- Deduct 1Percentage TDS from the sale consideration
- Deposit this TDS with the Income Tax Department
- Issue TDS certificate to the seller
When buying from a builder:
- TDS compliance is usually smoother
- Builder companies guide buyers through the process
- Chances of mistakes are lower
When buying from an individual seller:
- TDS becomes complex if there are multiple owners
- TDS must be deducted separately for each seller
- Errors in TDS deduction can lead to penalties and interest
3. Stamp Duty and Registration Charges
Stamp duty and registration charges apply in both cases, regardless of who the seller is.
When buying from a builder:
- Stamp duty is payable even for under-construction property
- The value considered is either the agreement value or the government guideline value, whichever is higher
When buying from an individual seller:
- The same stamp duty rules apply
- There is a higher risk that the guideline value is more than the negotiated price
- This difference can trigger income tax implications for the buyer
4. Income Tax Benefits on Home Loan
Buying from a Builder
You are eligible for home loan tax benefits such as:
- Deduction for principal repayment under Section 80C
- Deduction for interest under Section 24(b)
- Additional deductions for first-time buyers under Section 80EE or 80EEA, if eligible
However, these benefits can be claimed only after possession of the property.
Interest paid during construction is allowed only later, spread over five years after possession.
Buying from an Individual Seller
- All the same tax deductions are available, but:
- Benefits can be claimed immediately after purchase and possession
This results in earlier tax savings compared to under-construction properties
5. Capital Gains Tax – Indirect Impact on Buyer
When buying from a builder:
- The builder pays tax as business income
- The buyer has no involvement in capital gains tax at the time of purchase
When buying from an individual seller:
- The seller may be liable for capital gains tax
- If the seller does not comply properly, the transaction may attract scrutiny
- Buyers may be asked to explain payment details during income-tax assessments
6. Buying Property Below Market Value (Section 56(2)(x))
This rule applies whether you buy from a builder or an individual seller.
If the stamp duty value is significantly higher than the purchase price:
- The difference may be treated as income of the buyer
- The buyer must pay tax on this difference under “Income from Other Sources”
This issue arises more frequently in resale transactions, where negotiation and discounting are common.
7. Cash Transactions and Tax Scrutiny
Buying from a builder:
- Payments are mostly through banks
- Proper invoices and receipts are issued
- Lower risk of income-tax scrutiny
Buying from an individual seller:
- Cash components are more common
- Higher risk of tax notices
- Possible issues under anti-black-money and benami laws
8. Overall Tax Impact in Simple Words
Buying from a builder usually means:
- Higher upfront tax due to GST
- Lower compliance risk
- Structured and transparent payments
Buying from an individual seller usually means:
- No GST, so lower purchase cost
- Faster home loan tax benefits
- Higher need for legal and tax verification
Frequently Asked Questions (FAQs)
Is GST applicable on resale property?
No. Resale property purchased from an individual seller is not subject to GST if an Occupancy Certificate is available.
Can I avoid TDS while buying property?
Yes, only if the property value is Rs 50 lakh or below. Otherwise, TDS is mandatory.
Which option is better from a tax-saving perspective?
Resale property usually saves more tax because GST is not applicable and deductions start earlier.
Is buying from a builder safer from an income-tax point of view?
Yes, builder transactions usually have better documentation and lower scrutiny risk.
Can I claim home loan tax benefits for an under-construction flat?
Yes, but only after possession. Pre-construction interest is allowed later in installments.
What is the biggest tax risk in buying from an individual seller?
Incorrect TDS deduction, undervaluation issues, and unpaid seller taxes.
Conclusion
If your priority is tax safety and compliance, buying from a builder is generally safer. If your priority is lower tax cost and immediate benefits, buying from an individual seller can be better—but only with proper legal and tax checks.
