17-May-2023  |  Investor Arena

Top 5 Tax Benefits on Real Estate Investment in India

Real estate investment in India gives lots of tax benefits apart from regular income and safe returns.


Top 5 Tax Benefits on Real Estate Investment in India

Regardless of the presence of diverse investment options like stocks, crypto, gold, SIP, and others, real estate investment in India always wins Indians’ hearts. A report says that around 77% of the average Indian household’s total assets are real estate.

According to a report by Times Now, a total of USD 1.7 billion has been invested in India just in the first quarter of 2023. Led by office spaces, real estate in India is growing in every sector- residential, commercial, retail, hospitality and so on. 

Each sector in the real estate industry has its own market value. Depending on it, the returns on real estate investment in India vary. Every sector’s growth value has been quite prominent throughout the last couple of years post-pandemic.

Cities like Delhi NCR, Noida, Mumbai, Pune, etc., are the big gainers in the current scenario. Well, however, tier-2 and tier-3 cities are also not far away.

So, it is evident that people are relying upon real estate investment in India. But what are the reasons? Let’s talk about it.

Why People are Investing in Real Estate in India?

There are various reasons. With the introduction of RERA, people feel secure about investing in real estate properties in India. After all, it ensures a transparent and hassle-free transaction. Real estate in India is more buyer-friendly now.

Another strong reason is that real estate investment is less volatile, unlike the stock market. Also, you can avoid the risks of theft or storage issues like gold, etc. The emergence of Real estate Investment Trusts or REITs is another feather added to the crown. With the help of REITs, you can invest small capital in real estate asset shares.

Moreover, it protects against inflation. Purchasing power of a currency may go down due to inflation. At that time, a real estate investment is the best way to save yourself from a huge capital loss.

Due to the rapid industry growth, increasing housing demand, and other factors, investment experts consider real estate investment one of India's safest options for building wealth.

However, apart from the above-mentioned reasons, tax benefits are another strong factor that makes real estate in India the best investment option. This blog will discuss the tax benefits of real estate investment in India.  Further, we will answer a few commonly asked questions to clarify your doubts.

Tax Benefits on Real Estate Investment in India

Affordable housing loans with low-interest rates make property investment a lucrative opportunity to diversify your investment portfolio. Government initiatives to provide tax incentives on real estate investments in India make it more attractive and lucrative.

1.   Tax Savings on Repayment of Home Loans:

You will love knowing that you can save taxes while repaying your home loan. According to the Income Tax Act, you may claim a deduction up to Rs 1.5 Lakhs under Section 80 C on principal repayment. Also, you can claim for the same of up to Rs 2 Lakhs under Section 24. The deduction under section 24 is limited to 2 lakhs if the property is self-occupied. For rented properties, there is no upper limit.

2.   Tax Benefits on Capital Gains under Section 54:

Capital gain is the profit you earn by selling a property. Suppose you buy a home for 60 lakhs and sell it for 80 lakhs, 20 lakhs will be the capital gain for this property. The good news is that you can save tax on it following certain criteria.

Capital gains are of two categories- STCG, or Short-Term Capital Gain, and LTCG, or Long-Term Capital Gain. The first applies when the gap between buying and selling a property is less than 2 years. And LTCG applies when a property is held for 2 years.

You can save tax on long-term capital gain. Hold the property for 2 years and sell it. Then, invest the capital gain to purchase another property. Thus, not only you can avail of the tax exemption but multiply your profits also.

For example, if you get a 10 lakh capital gain, you can buy another property with that. Thus, you can save up to 3 lakh tax, assuming a 30% tax rate. Note that you can buy up to two properties with the capital gain to opt for tax savings.

3.   Rental Income Tax Benefits:

Rental income from a property is taxable. However, you can save this tax in some ways. You can claim a deduction of the payable tax amount for expenses related to the property. The expenses may include repairs, maintenance, insurance, property tax, etc.

Also, you can claim a 30% deduction from the total rental income for other expenses.  For example, you receive a monthly rent of INR 25000 and pay INR 1500 as property tax. You can claim a deduction of INR 1500*12= INR 18,000. Thus, you can save a significant tax amount on your rental property.

4.   Property Tax Deduction:

You will be amazed to know that buying property is not always equivalent to paying a high property tax. Under section 80C of the Income Tax Act, you can claim a deduction on property taxes up to 1.5 lakhs. Anyways, your other investments must meet certain eligibility criteria and be permissible to avail of this opportunity.

5.   Tax Savings under Section 54F:

Under section 54F, you can claim a tax exemption on the capital gain from any property except residential ones. Anyways, you have to follow certain criteria for it. First, you must invest the net sales amount of the old property to buy a new residential property.

The residential property must be constructed within 3 years of selling the old property. Also, you must purchase the new asset 1 year before or 2 years after selling the old one. Moreover, as a taxpayer, you should not own any other residential property when selling the old property except the one that you bought to claim the tax exemption.

Frequently Asked Questions

1. Is investment in real estate tax-free

 No, it is not completely tax-free. However, following certain eligibility criteria, you can save lots of tax. Also, the total tax amount can be exempted in some cases depending on the investment type and other factors.

 2. What are the tax benefits of land investment?

Besides residential and commercial property investment, land investments in India also offer some tax benefits. According to Section 80C, you will be eligible for a tax exemption of up to Rs.1,50,000 annually.

If you pay it in the year the home is constructed, the title transfer fees for the plot and the registration fees are also included in the exempted limit.

 3. How much rental income is tax-free?

You may have to pay taxes if the rental income is your primary income source. The annual rental amount is called a property's gross annual value or GAV. If it is below 2.5 lakhs, you do not have to pay taxes. The rental income is not taxable if it comes from a self-occupied property, a farmhouse, educational institutes, trade unions, etc.

 4. What are the three types of house property?

 There are three major types of house property. They are self-occupied property, deemed to be let out property, and let out property.

5. Can I show 2 homes for tax exemption?

 You can, but the deductible amount will be fixed. Deduction on a home loan principal repayment is available for a maximum of Rs 1.5 lakh under section 80C. Even when you have a second home loan, the maximum deduction for principal payments will still be that amount.

So, the income tax benefit on both home loans for principal repayment can be up to a maximum of Rs 1.5 lakh under section 80C.

6. How many properties can a person own?

 There is no such maximum limit for owning properties in India. However, you may have to pay taxes and follow legal procedures if you own multiple properties. It is ideal to discuss with property consultants in Noida and other areas to get a clear picture of it.

Final Words

These are the major tax benefits of real estate investment in India. You might now be more interested in buying a real estate asset in India than ever. However, many new tax exemption opportunities are on the way. So, do not forget to visit a reliable real estate investment consulting company for more tax-related information before buying real estate properties in India.


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