Buying a home in India: What are you actually paying for in taxes?

As one commenter rightly pointed out, each of the construction materials which go into making the project, also has a GST levy on them (cement as high as 28%!). Then there’s the “graft money”, the unstated, sums developers have to pay get project approvals and permissions. When you add it all up, it’s not 25%, it’s closer to 30% or even 40% of your hard-earned money.

Without splitting hair on exact percentage of taxes, the larger questions is what do you get in return? While property prices in cities like Gurugram, Bengaluru, Mumbai, are climbing higher, the basic urban infrastructure, be it roads, drainage, sewage, is getting worse by the year.

This isn’t just an inconvenience; it’s a profound betrayal

Take a look at how the government is pocketing a third of what you pay for buying a multi-crore apartment, with zero accountability.

First, the hidden taxes and levies.

Even before a brick is laid, builders pay the town planning authorities a licensing and approval fees. They can be a major expense, and they vary depending on where you’re building. In Gurugram, these fees can be as high as 5-7% of the total project cost. They include things like, change of land use (CLU) charges, license fees, plan sanction fees, and dozens of no-objection certificates (NOCs) for things like fire, environment, and pollution.

In Bengaluru and Mumbai, this basket of fees is a little lower, typically adding up to 4-6% of the project cost. But make no mistake, that entire amount is fully absorbed into the final price of your apartment.

Next, you have to factor in the development charges: IDC and EDC. That’s internal and external development charges. While builders technically pay these, they are always a direct pass-through to you, the buyer. In Gurugram, this money goes straight to the Haryana Government’s Department of Town and Country Planning. On paper, these fees are meant to build essential infrastructure like roads, sewage systems, streetlights, and waste management.

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To make it simple, if a builder is selling at ₹25,000 per square foot, about ₹500 per square foot, roughly 2%, is an EDC/IDC fee that goes directly to the government. This doesn’t sound like much, but let’s scale it up. For a residential project with 800 apartments averaging 2,000 square feet each, you’re paying around ₹10 lakh per apartment straight to the DTCP. That adds up to a staggering ₹80 crore for just one project. Multiply that by 25 such projects in one micro-market of Gurugram, and you’re looking at a staggering ₹2000 crore. The question that begs an answer is: where is this ₹2000 crore going?

The terminology changes, but the story is the same in other major cities. In Bengaluru, there is no EDC or IDC, but you still pay development fees and betterment charges to authorities like the BBMP and BDA for amenities and infrastructure. In Mumbai, the equivalent comes in the form of development charges and infrastructure premiums, which are paid directly to the Brihanmumbai Municipal Corporation.

That’s not all; there’s another tax built into your home’s price: a 1% Labour Cess on the construction cost. This money is meant to fund state-run Building and Other Construction Workers’ Welfare Boards, with the noble goal of providing for the well-being of construction workers through healthcare, maternity support, education for their children, housing, pensions, and insurance.

No one would argue against paying this 1%, but there’s a problem: the money isn’t being used as it should be. Since the Act was implemented in 2005, over ₹1,70,000 crore has been collected across states as labour cess. Yet, as of 2024, nearly ₹70,000 crore, or more than 50% of the funds, are lying idle or unutilized. So yes, you’re also paying into a welfare scheme that barely reaches the very workers who build your home.

When you combine, licensing and approval fees, development charges/premiums, betterment charges, labour cess, you’re looking at 15-20% of your total apartment cost, silently embedded in your base price, depending on where you buy.

The obvious taxes: GST, stamp duty, and registration

On top of the hidden charges, there are the visible taxes that are a significant part of your home’s cost.

The first is GST on under-construction homes. At 5%, this is directly added to the price of the apartment, that you the homebuyer, has to pay.

Then come Stamp Duty and Registration charges. These vary by state, but in Maharashtra, Karnataka, and Haryana, they add another 5-7% to your flat’s cost. It’s worth noting that India’s stamp duty and registration fees are among the highest in the world.

When you add all these numbers, close to 30%, if not more, of what you pay to buy and register an apartment in any of these cities goes straight to the government in taxes alone. And let’s not forget the final tax: the annual property tax you’ll continue to pay for the rest of your life.

India’s economic engines with failing infrastructure

Cities like Gurugram, Bengaluru, and Mumbai are not only where people pay the most for housing, they also generate over 60% of the economic activity for their respective states. They are the cash cows and kings of real estate. Yet they come across as poor global cities, left fighting every monsoon with flooded streets and a civic collapse. And after the monsoons, some of the most toxic air on the planet.

That’s the billion-rupee question: where do all these taxes go?

There is no public audit, no accountability, and no benchmark for how much of the money collected from citizens is actually ploughed back into making these cities livable.

The unfulfilled promise of the 74th Amendment

Ultimately, unless civic and municipal authorities are held accountable and the taxes they collect are spent with full transparency, we will continue to see a tragic loss of life and property. Things will not improve unless there is a fixed and reasonable share of the taxes collected from these cities, that is reinvested directly into their development.

We need to demand the proper implementation of the 74th Constitutional Amendment. In essence, this amendment was designed to empower cities by creating a system of decentralized governance. It was meant to give urban local bodies real power and financial autonomy, allowing them to collect and spend their own taxes to improve local infrastructure and services. The goal was for these local bodies to be directly accountable to citizens through elected mayors and councils, making cities self-governing and independent.

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Sadly, this amendment exists only on paper. Urban local bodies still answer to Chief Ministers, not to citizens or their own mayors. Mayors in India hold the title but have no real power.

Unless we demand change, demand that our cities get their fair share, and get the real authority to spend the taxes we pay, our money will keep disappearing into a black hole.

Manisha Natarajan is a well-known editorial voice in Real Estate and Sustainable Built Environment