Investment in real estate is not a new thing, but it certainly has gained popularity in recent years. We understand the cause behind it. The transparency of the internet and access to unlimited knowledge has opened the gateways to financial stability for the masses, and people are now diving deep into this.
Investing your wealth in real estate is one of the most common ways to create a cash flow stream. Unlike other possessions, it commonly returns better numbers. Investing in real estate is always a win-win situation for you.
It is not only about the profit you make while selling it or giving it on rent; it also offers you several exemptions from taxation from the government. These taxation laws allow you to save money by following some business conditions.
Following this advice will help you make a lot of money from several exemptions you may not still be aware of. In this article, we will discuss all of those and how they can help you with your financial streams in India.
Table of Contents:
- Tax Benefits of Investing in Real Estate in India
- Deduction in Home Loan Interest
- Tax Exemption on Long-Term Capital Gains
- Deduction of Stamp Duty and Registration Charges
- Deduction of Property Tax
- Tax Benefits on Jointly Owned Property
- First-Time Homebuyers Tax Benefits
- Tax Benefits for Rental Properties
- Conclusion
Here are the Top 7 Tax Benefits of Investing in Real Estate in India
1. Deduction in Home Loan Interest:
The Government of India exempts you from taxation for a home loan up to 2 lakh rupees. Section 24 of the Income Tax Act of 1961 states this exemption in detail and gives the benefits to the owner of the property as an exemption. The cap on the amount is only applicable to a property where the owner is living.
There is no such limit to the exemption for the deduction of interest on rental properties. The Income Tax Act considers a home loan as a cost of acquiring the property that is deductible from the rental income only. Next time you are going to your bank manager, you must ask him to explain the complete deduction process.
2. Tax Exemption on Long-Term Capital Gains:
To understand this benefit completely, you need to understand two financial terms- Capital Gains & Indexation. Capital gains are the revenue you generate by selling the property. Indexation is the method of adjusting the actual price of the property considering the effects of inflation on the property.
When you sell a property, you have capital gains, and as per law, you must pay taxes on those However, if you hold the property for a minimum of 2 years and sell it later, the taxation of capital gains will drop. Currently, this is taxed at 20% with indexation. You will find this law in Section 54 of the Income Tax Act.
Note that you must invest the capital gains of the sold properties in another property to avail yourself of the exemption within the specified time frame or in specified bonds. For example- if you gain 20 lakhs as a capital gain and you have invested this amount in another property within a specified time, you can save up to 6 Lakh INR in taxes.
3. Deduction of Stamp Duty and Registration Charges:
Stamp Duty– Tax amount that is applied on any kind of monetary transaction for the purchase of a property. It varies with the percentage of the total property cost.
Registration Charges– Registration charges are the payment one has to pay to register the property in the owner’s name. This is above or over stamp duty. It is generally 1% of the total property cost.
Both exemptions are applied only in the year of purchase of the property and are given to a special group of people only. According to the Indian Income Tax Act, Section 80C (1961), only individuals and Hindu undivided families are beneficiaries of this exemption. This is applicable only when the construction of the house is complete and should be in the name of the assesses or individual. The law allows an exemption of up to Rs/- 1,50,000 to the beneficiary. In the case of joint properties, the exemption is given to both owners, each up to Rs/- 1,50,000.
Also Read: Women are the New Rising Stars of the Real Estate Sector
4. Deduction of Property Tax:
If you are investing your money in real estate to start a business, you can apply for a deduction of property tax. Section 37 states the exemption from property tax for business owners. The law goes further with several conditions that limit its domain of work. Your business must not involve any capital, personal, or illegal expenditures. A beneficiary is allowed to completely deduct the taxation amount under this exemption.
5. Tax Benefits on Jointly Owned Property:
If you have a property in Joint, you both are in luck. The Indian Government had issued laws for allowing exemptions of tax to both or more owners equally. Each co-owner can claim the deduction in taxes to save money.
Above, we have already discussed the benefits of joint property ownership in case of stamp duty & registration charges. The co-owners can claim the exemption on the home loan & the rental income in proportion to their share. This law allows you to save a significant amount of wealth together.
Also Read: GST: A needful reform for the Real Estate Sector
6. First-Time Homebuyers Tax Benefits:
If you’re a first-time home buyer, here is your chance to save up to 5,00,000 INR in your real estate investment in India, as an exemption from the government which is far greater than the current limit of 2,00,000 INR. Section 80EE of the Income Tax Act of 1961 says so. However, it has some conditions to check whether you fit in the box.
– The house must not be worth more than 50 lakh INR,
– The loan must not go beyond 35 lakh INR.
7. Tax Benefits for Rental Properties:
Rental properties are an asset for you. They draw a recurring monthly or annual income to you and therefore make you eligible to pay taxes on it. For example, if you have rented out a studio apartment or a home for rent, they bring you money.
The government allows you to claim an exemption in taxation for various expenses. Repairing, maintenance taxes, property taxes, and insurance are some expenses. A standard claim is 30% of the new rental income to account for other expenses.
Example- If you earn 30,000 INR from a property each month and pay a property tax equal to 2000 INR/month, you can claim up to 24,000 INR as a tax exemption that can save up to 7200 INR if we assume the standard tax rate as 30%.
Conclusion:
The government allows several tax exemptions to people who are in the investment business or are buying their first home. If you are looking for the best property to invest in India, this article discusses some insightful points that will help you significantly.
You have read how different sections of the Indian Income Tax Laws help you claim exemptions to promote the business & investment, and culture in India. So next time you’re going to buy a house, ask your bank manager & CA for complete details of such benefits.
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