Govt Taxes Take 50%: Why Middle-Class India Can’t Afford Homes

Introduction

The dream of owning a home is slipping further away for India’s middle class. While developers and construction costs often get the blame, industry leaders argue that the real burden comes from the government itself. Sanjay Dutt, MD & CEO of Tata Realty, recently highlighted how nearly 50% of a property’s cost is absorbed by government taxes, levies, and charges. This leaves little room for affordability, especially in urban markets where demand is highest.

The Hidden Tax Burden on Housing

At first glance, taxes on property purchases seem minimal. The GST rate is just 1% for under-construction affordable homes and 5% for other residential projects. But the actual tax load runs far deeper:

• Stamp Duty & Registration: Adds 5–8% to the cost.

• Municipal Fees & Development Cess: Significant additional charges.

• Land Premiums & Approvals: Industry estimates say government costs can climb to 30–50% of project costs.

In short, half of every rupee spent on property could end up in government coffers.

Land: The Biggest Cost Driver

Apart from taxes, land prices make affordability nearly impossible. In metros, land alone accounts for 50–85% of project costs. Large tracts owned by government bodies—Railways, Defense, Port Trusts, and municipal corporations—remain unused. Unlocking these at reasonable rates could reduce housing costs drastically.

Infrastructure & Financing Gaps

Even when developers push projects to distant suburbs to reduce costs, buyers face commuting challenges due to weak infrastructure. Financing adds another layer of burden, as high capital costs make projects less viable. As Dutt notes, “What’s the point of going 50 km from the city and doing affordable homes when people can’t commute?”

The Way Forward

For affordable housing to truly succeed, reforms are essential:

• Rationalizing taxes and levies.

• Unlocking and monetizing unused government land.

• Expanding urban infrastructure to make housing near workplaces feasible.

• Providing financing support at lower interest rates.

Until these steps are taken, affordable housing will remain a distant dream for millions of middle-class Indians.