Taxation is a major concern when it comes to any type of investment and when you are talking about real estate investment...
Taxation is a major concern when it comes to any type of investment and when you are talking about real estate investment, it is often perceived that there is hardly any tax benefits in real estate investments. But, contrary to popular belief, real estate investors also enjoy certain tax benefits that are not applicable in any other sector. First of all, the introduction of RERA (Real Estate Regulatory Authority) has made this sector transparent protecting the interests of the investors.
Now coming back to the tax benefits in real estate investments, you need to first know the taxes that are associated with real estate. When it comes to purchasing, owning/holding and selling of a property in India, only 4 kinds of taxes are involved, which are listed below:
CAPITAL GAINS TAX –Applicable once on sale of the property.
PROPERTY TAX – Applicable every year while holding/owning a property.
WEALTH TAX - Applicable every year while holding/owning a property.
GST (Goods and Service Tax) – Applicable to properties under construction only.
There is no tax applicable to purchasing a property, although you have to pay Registration and Stamp Duty which does not fall under taxation.
The Capital Gains Tax is a big-time savior when it comes to tax benefits. Property investors have to pay this tax at the time of sale of the property only on the surplus-value of the property. So if you are selling the property at the cost price or lower, no tax is applicable. Moreover, the deficit can also be used to write off current or future gains from real estate investments or other sources of income such as shares and equity. Hence, the name of the tax is derived as Capital Gains.
There are also certain criteria that allow you to claim exemption from long term capital gains, which are listed below:
By purchasing a residential property within the specified period from the sale date as mentioned under Sec 54F of the Income Tax Act.
By constructing a residential house within the specified period or within 3 years from the date of sale.
By not selling the new property for both the above points from the purchase date.
By depositing the funds before the due date of income returns into Capital Gains Accounts Scheme 1988.
By reinvesting the long term capital gains within 6 months of sale into the mentioned government’s assets.
Property Tax is paid every year on the market value of the property and it generally varies between 0.5 to 2 percent.
Wealth Tax is an additional tax payable only on non-productive assets over and above the minimum limit of INR 1 crore. The amount for wealth tax is applicable after deducting all the assets and liabilities. Hence, it is one such tax that is hardly applicable in spite of having properties worth in crores.
GST is a recently introduced tax and it freed the real estate investors from the previous taxes such as VAT and Service Tax. The GST for real estate was 12% which has now come down to just 1% for affordable housing and 5% for the rest.
This is done in the light to encourage more and more investors of all income groups like real estate is a major contributor towards the GDP. These were the list of direct and indirect taxes associated with property investments. So, if you are considering becoming a property investor or buying a new home, you should consider all the above-mentioned points in order to save yourself a good fortune.
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