Do you intend to buy your first ever real estate property this coming month? Well, congratulations! But did you also know that you could generate rental income from that property of yours? Buying your first real estate property is a significant step for any investor. It’s also one of the most valuable properties you can purchase, and with time and work, it can be a terrific method to produce rental income. Sounds fantastic? But, before you become a real estate tycoon and begin constructing an empire, you need first to learn the fundamentals. And one of the most critical fundamentals in real estate investment is T-A-X! Oh yes, TAX! And so is rental income taxed!
Real estate is one of the most popular investment vehicles among investors. The reason is that in the first decade of the twenty-first century, real estate provided large profits in a short period. For example, Assetmonk is a wealth technology platform that only lists approved and credible real estate assets. In regions like Hyderabad, Bengaluru, and Chennai, the assets provide project returns with IRRs of up to 21%. However, it has always been the case that persons participating in the real estate market are somewhat unaware of the taxes involved. And particularly the Long Term Capital Gain (LTCG) tax and the exemptions that the government provides to real estate investors. According to tax and financial experts, being unaware of this tax may find the investor in hot water.
Real estate investment is acquiring property to generate income. In layman’s words, it is any land, building, infrastructure, or other physical property that is immovable yet transferrable. Real estate investing is classified into several categories. The most prevalent types of real estate investing are residential, commercial, and industrial. Real estate investing may appear to be pricey at first, but it is one of the most proven strategies to grow wealth through rental income and capital appreciation.
For individuals unfamiliar with the sector, real estate investment can be scary. It may take many months (or properties) for investors to ease with real estate. As a result, beginner-friendly investing techniques are a wonderful place to start. While they are appropriate for inexperienced investors, they may nevertheless be tremendously rewarding especially for rental income when handled correctly.
There isn’t just one method to invest in real estate, so don’t be concerned—you don’t have to buy a whole apartment complex right now! Here are four of the most common real estate investment approaches for novices.
Capital gains are earnings gained when you sell a capital asset — a plot of land, a residential house, a business facility, or any other capital asset – for a price that is more than the price you paid for it. Furthermore, under the Income Tax Act, these capital gains are taxed. Capital gains tax can be Long term Capital Gains Tax (LTCG) or Short term Capital Gains Tax (STCG), depending on the duration of the property’s holding.
Long-Term Capital Gains (LTCG) get taxed at 20%, depending on an individual’s tax bracket.
Property owners in India must pay capital gains tax on the sale of residential property. The rationale for the capital gains tax on residential property transactions is that the sale of property frequently results in profits for the owner. Whether you’re buying or selling a house in Pune or elsewhere, paying capital gains tax is one way to save money.
Rental income from a property is taxed under Section 24 in the owners’ hand under the heading ‘income from home property.’ The rent received by leasing out unoccupied land, on the other hand, is taxed under ‘income from other sources.’ Income from the home property only gets taxed on the land part of a structure.
According to India’s current tax laws, if a property is leased or rented, the sum received in exchange for the property is referred to as “Rental Income.” It includes any advance payment made as a security deposit. The rental income is substantial, according to the IPC, and should get taxed under Section 24 of the Income Tax Law. The government makes no distinction between residential and commercial property. Even the parking lot attached to your business or home is considered a house property and is taxed if rented out. House property is any structure-shaped property that may be taxed. As a standard deduction, 30 percent of your rental income gets taxed in India under the head income from dwelling property. However, for this standard deduction rate on income tax on rental income in India to apply, one must be the legal owner of a property.
Real estate investing may give tax benefits like rental income tax benefits. But the difficulty – and sometimes the most difficult challenge – is discovering available solutions and knowing how and when to apply them.
These chances are not always clear or straightforward, and they frequently need extensive investigation. The end outcome can be well worth the effort. Taking full advantage of these tax breaks can help you develop considerable long-term wealth by reducing – or eliminating – tax and rental income tax payments.
The following sections of the Income Tax Act of India provide the tax and rental income tax benefits for real estate investments.