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Tax benefits on investment made in realty market

Besides good returns one of the appealing reasons that encourages investors to invest in real estate is the tax benefits. Income-tax Act, 1961 offers various tax benefits to the investors that promote realty investment in India.


Tax Benefits on Residential Properties


On home loans: As the property prices are growing rapidly, most of the investors take home loans to buy a property. Home loans not only make financing your residential property easy, but also offer you tax benefits on interest payable on loan and on the principle amount. Under Section 24 of Income Tax Act 1961 interest payable on home loan is deductible up to Rs. 1.5 lakh every year. In addition, under Section 80-C of the same act, one gets tax deduction on repayment of principle amount to the extent of Rs. 1 lakh annually. There is one condition that one can avail this tax deduction only once the possession of the property is handed over to the person. One more benefit offered is that this exemption is also applicable on the loan borrowed from friends and relatives.


Tax exemption on capital gains: Property investment is a good option, as one gets tax exemptions on capital gains too. Capital gains are the profits which one earns on sale of the residential property, which has been sold after three years of possession. Though capital gains are taxable at the rate of 20%, under Section 54 of income-tax act, one can get exemption on capital gains, by investing the capital gains in purchase of new property within next two years from the date of the sale of old property. If one suffers loss on one property and earns profit on sale of another property, tax exemption can be availed on the capital gains remained after deducting the capital loss. You can also invest the capital gain in construction on new property and it should complete within three years from the date of sale of property. The condition in both the cases is that you can invest in only residential property, not commercial property.


Tax Benefits on Real Estate Investment

Tax Benefits on Rental Properties


Besides capital appreciation in long term, realty investment also provides monthly income in the form of rental income. Though property owners have to pay tax on rental income, there are some tax exemptions on it. One can apply for the below mentioned exemptions:


  • Any property taxes
  • Up to 30% deduction on total rental income as maintenance cost
  • Interest paid on home loan


For instance your total rental income is Rs. 5 lakhs. The tax deductions for municipal taxes is Rs. 20,000 and 30% maintenance cost comes to Rs. 1,50,000. After deductions taxable income would come to Rs. 3, 30,000. And if you have borrowed home loan and the interest payable on this loan is more than Rs. 3,30,000 your entire rental income will be tax free.


Tax Benefits on Commercial Property


Though under Section 80C one can’t apply for deductions on capital property, it is exempt from wealth tax. Commercial property is not included in calculation of wealth of a person.


So, different beneficial provisions for investment in residential property and commercial property are provided by the Indian Government. Avail the tax benefits depending on your realty investment.

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