Investing in real estate in India is a great way to build wealth and gain financial freedom. It is known for good returns in a relatively short time and is considered a safe investment option, provided investors are aware of developments in the sector and choose trusted companies. Many real estate investors run into trouble because they aren’t fully aware of the taxes involved — especially Long Term Capital Gains (LTCG) tax — and the relaxations the government offers.
The Income Tax Act of India offers a number of tax-saving windows for property purchases. Being able to claim benefits on home loans can significantly improve cash flow over the long run. Here is a simpler breakdown of the relevant provisions.
Tax laws
Section 80C — Claim tax benefits on repaying the principal amount of a home loan, as well as on investments made from the returns of any income generated within the same year. The maximum tax-saving limit under this section is Rs. 1,50,000.
Section 24B — Claim exemptions on the interest payable for home loans. The maximum saving for a self-occupied property is Rs. 2,00,000; if the property is still under construction beyond five years from when the loan was taken, this benefit is reduced to Rs. 3,00,000.
Section 80EE — Provides income tax rebates on residential property loans for first-time buyers, with a deduction of Rs. 5,00,000 plus an additional deduction of Rs. 2,00,000, available until the entire home loan is repaid.
Additional tax benefits on residential real estate investments
Minimising tax outgo is always welcome. Here are some further tax-saving options for people buying flats.
1. Long term capital gains — The rollover benefit of capital gains under Section 54 of the Income Tax Act has been extended from investment in one house to two houses, for taxpayers with capital gains of up to Rs. 2 crore, and can be availed only once in a lifetime.
2. Tax savings for ready-to-move-in homes — These benefits apply only after a certificate of completion has been received. Tax-saving options for such completed properties are covered under Sections 80C, 80EE and 24B.
3. Short term capital gains — As with long term capital gains, tax can be claimed here too; since short-term gains fall within the ordinary income bracket, savings depend heavily on your income slab.
4. For owners of two self-occupied properties — Owners of two homes, both self-occupied, are now offered relief that was previously unavailable when only one home could be declared self-occupied.
5. Depreciation — One of the most powerful tax-saving benefits in real estate, depreciation helps investors improve cash flow by reducing tax liabilities.
Tax savings, not tax evasion
Everyone wants to minimise the taxes they pay, but it is worth remembering that taxes fund public benefit. Maximising tax savings is a careful, legal exercise — investors and their advisors should stay within the law while making the most of these provisions.