Investing in real estate is one of the most beneficial and rewarding forms of investment. Any experienced investor will tell you about the advantages of real estate investments and why it is the best available option to increase your wealth and build assets. However, did you know that there are many legal aspects of investing in any kind of property?
It is not just the Goods and Services Tax (GST) that counts. Indirect taxes such as registration and stamp duty are additional expenses that need to be counted when investing in property.
Let us take a look at the basics of taxes involved when it comes to various kinds of property-
For under-construction property
GST or Goods and Services Tax
If you are considering investing in an under-construction property such as an apartment, you need to understand the tax levied on the same. As per the instructions of the Central Government of India, the initial rate was pinned at 18%. Later a provision was added and hence the tax rate was lowered to 12% for under-construction property. In February 2019, the government revisited the tax slab and further reduced it to 5% for any under-construction units while affordable homes were to pay 1% GST.
However, registration fees and stamp duty (levied by the State Government) are additional charges that are imposed on GST upon the purchase of an under-construction property.
For Ready-to-move-in property
The scenario is somewhat different when you choose a ready-to-move property. Post the amendment of section 194-IA of Income Tax, all kinds of residential and society-based charges such as membership fees, car parking fees, electricity and water facility fees, maintenance fees, and any such fees which are involved in the transfer of any immovable property will be included in the tax act.
Registration charge
You need to include the sales documents with a registering officer along with all other documents related to the transfer, sale or lease of the property. This document is crucial as it serves to be the final agreement between both parties. After the completion of the buying process, this agreement will make the buyer the legal owner of the property. Although the registration fees vary from state to state (as decided by the state government), they are typically one per cent of the total agreement value.
Stamp duty
The government collects income tax or sales tax in the form of stamp duty and it is approximately 5% of the market value of the property. In case you are searching for a Mannivakkam land for sale, make sure to calculate the price by including the stamp duty. A buyer must also pay the required amount at a collection centre or at a bank prior to the registration. Any delay in this process can lead to a penalty.
If you have read this far, now you must be wondering, how is an investment in the real estate industry profitable if the investor has to pay so many taxes? Well, there are a number of tax benefits that you should also know about when investing in real estate.
Section 80C
When you are investing in land in Mannivakkam or buying a house, Section 80C of the Income Tax lets you remove up to Rs. 1.5 lakhs from your total taxable income. As buying any property is considered an investment, you can deduct the said amount from your income and later claim it when applying for a home loan.
Section 24
When you are applying for a home loan, you are not just to pay the principal amount, but also to pay back the interest that is involved. This is in case, Section 24 serves your purpose of tax benefits and exemptions.
You can file for an exemption of almost Rs. 2lakhs on the interest of the home loan in case the buyer or the family is already residing on the property. For rental homes, Section 24(b) can help you to claim the deduction.
Capital Gains
Capital gains are referred to any profit that is generated upon investment in any kind of property or on the selling of any property.
If you are buying land in Mannivakkam and selling it within 3 years of purchase, you can make a profit from the transaction, known as short term Capital gains. This capital gain is considered as an income and taxes are levied accordingly. As an investor, if your total income is more than 10 lakh, you will be required to pay 30% tax. After a period of three years, the profit is calculated as long term Capital Gains. Any long term capital gains are taxed at 20%.
Depreciation
One of the biggest tax benefits you can earn as an investor comes from the depreciation of property. When you are buying plots near Mannivakkam, you can expect depreciation of the property that will help you improve the cash flow. This is also crucial for the repayment of home loans.
In the case of apartments and houses, owners are required to invest in repairs and other upkeeps. This maintenance cost and the depreciated purchase price can be reclaimed through tax deductions.
Recent tax reliefs
Some new tax reliefs were introduced in November 2020 and continued up to June 2021. This was mainly introduced to encourage more buyers to invest in the real estate market.
Investing in real estate, even after the payment of taxes, is profitable. However, the key lies in proper research and smart choices. If you are looking for investment opportunities in land in Mannivakkam, this is a perfect time! You can also consult experts in order to make an informed decision.
