The size of domestic real estate in the country is set at $265.18 billion and is poised to cross $828.75 billion by 2028.
In this backdrop, the real estate sector has become a cash cow for investors as well as developers.
Come with the profits and the taxes. These include the tax paid to the municipal corporation, GST, stamp duty, registration charges, and many more.
Let us explore various alternatives to get an exemption from the payment of capital gains tax or pay less tax.
Savings on depreciation
The real estate sector is subjected to depreciation. Investors and developers take advantage of the depreciation to save on tax payments. Depreciation is used to show the deterioration of the value of the property. It greatly reduces the taxable income of investors and developers. For residential properties, the depreciation is 5%, while it is 10% for other properties.
Joint management
Another strategy to be adopted by investors and developers to save tax is joint ownership of the property. The joint property, acquired on a house loan, can be claimed as an exemption from income tax to the tune of Rs 1.5 lakh under Section 80C of the IT Act. By dividing the rental income among the joint owners of the property, they can save themselves from the tax burden.
Investing in agricultural lands
As per Section 54 of the Income Tax, agricultural land is not classified as a capital asset. Therefore, investing in agricultural land is profitable. It is a good strategy to save taxes. Therefore, the sale of agricultural lands would not attract the payment of capital gains tax. On the basis of returns and tax savings, investment in agricultural lands is profitable.
Strategic investments
One of the popular strategies would be to invest in 54 EC bonds issued by the Rural Electrification Corporation and the National Highways Authority of India. It enables investors to earn savings up to Rs 50 lakh on taxes.
