Real estate covers housing, retail, hospitality and commercial sector. Investment in real estate is a lucrative option. It attracts a lot of investors for building on wealth as it promises good returns. It acts as a catalyst for the economy. Governmental policies provide various tax concessions in the real estate sector. Deductions are permitted to encourage investment in real estate.
Investor in real estate enjoys some tax benefits like:
- Long term capital gains:
Capital Gain is income from profits earned by the sale of a property. Capital gains are short term (profit from the sale of the property within two years of its purchase) or long term (profit earned from the sale of property held for more than two years)
The rate of tax is much lower on long term capital gains. Exemptions are allowed from capital gain taxation if the profits are reinvested in:
- A residential property constructed or purchased in India
- Bonds like REC, NHAI
The reinvestment has to be made within a stipulated period to avail the benefit of exemption.
2. Capital Gain Account Scheme:
Capital Gain Account is opened in notified Public Sector Banks to avail tax benefits. If the capital gain amount is not reinvested within a particular time, the exemption is lost. But the said amount can be deposited in Capital Gain account to get the benefit. It should be deposited before filing the return. The amount deposited has to be used within the stipulated time.
Capital Gain Account can be saving account or term deposit account.
3. Interest on home loan:
One of the best real estate investments is buying a home. Since the investment is huge, people prefer a loan for buying a house. As a measure to boost the same, the Government allows deductions from taxable income if a home loan is availed. The loan can be for purchasing or constructing a house. Tax benefits are available for both rented and self-occupied houses. Deductions are allowed from:
- Interest paid on the loan
- Principal Amount
- Stamp duty and registration fees paid
Each category has separate conditions for availing the exemption.
4. The deduction allowed for an investor:
An owner of a real estate can avail the benefit of lower tax through permissible deductions –
- Maintenance charges – expenses incurred to maintain the property (renovation, repair etc.)
- Property tax
- Interest paid on loan for the property
- Utility charges
5. Depreciation Cost of Asset :
- Depreciation means a decline in the real value of the asset over several years. Tax laws in India allow deducting depreciation from taxable income. It lowers the tax to be paid. The asset must be in the name of the income taxpayer and used for business purpose. Depreciation is calculated as permissible under the Income Tax Act.
Thus the investor has many options available to him. He has to decide judiciously to avail the tax benefits of real estate investment.