Tax Benefits of Investing in Real Estate

Robert Kiyosaki, the real estate investor and author of Rich Dad Poor Dad, famously stated, “It's not how much money you make that counts but how much money you keep, how hard it works for you, and how many generations you keep it for.”

Investment portfolios today contain a wide range of options including equities, mutual funds, gold, cryptocurrencies, and much more. Although these enjoy certain popularity, real estate still accounts for the majority of the average Indian's overall assets. Making a wise investment can change not only your life, but also the lives of your children. Traditional savings and a single source of income are no longer sufficient to achieve financial independence.

Pune, often referred to as Maharashtra’s cultural capital, is a thriving metropolis regarded by investors as one of the most lucrative and viable locations to invest in residential real estate. The key investment determinants for investing in apartments include Pune's favorable climatic conditions, as well as the city's flourishing IT, engineering, automotive, educational, and allied sectors. People prefer to relocate to Pune and invest in real estate because there are increasing numbers of jobs as well as higher education opportunities in this city.

In addition to the emotional gratification that comes from realising your ambition, investing in real estate, even as economical as a studio apartment in Pune can provide you with high return on your money. Being a tangible asset, it offers more security and the benefit of consistent income from rentals. Over time, the real estate value usually increases and the rental rates follow suit, generating greater cash flow.

Owning a property, receiving tax benefits, earning rental income, and many other benefits come with real estate investing. Additionally, it is significantly less erratic than the stock market.

In India, the government offers several tax incentives to encourage people to invest in real estate. These benefits can help offset some of the costs associated with owning a property and can make real estate a more attractive investment option. Not only can you expect to see an appreciation in the value of your property over time, but you can also enjoy a range of tax benefits that can help you save money and maximize your returns. Let's take a closer look at some of the key tax benefits of investing in real estate in Pune.

1. Deduction of home loan interest: If you have taken out a home loan to purchase a property, you can claim a tax deduction on the interest you pay on the loan. This deduction is available under Section 24 of the Income Tax Act, 1961, and is limited to INR 2 lakhs for self-occupied properties. If the property is rented out, there is no upper limit on the amount that can be claimed as a deduction.

For example, let's say you take out a home loan of INR 50 lakhs at an interest rate of 8% per annum. The interest payable on the loan in the first year would be INR 4 lakhs. If the property is self-occupied, you can claim a tax deduction of up to INR 2 lakhs on this interest. This means you can save up to INR 60,000 in taxes (assuming a tax rate of 30%).

2. Capital gains tax: The revenue received from the sale of a property is referred to as capital gains. When you sell a property, you may have to pay capital gains tax on the profits you make from the sale. However, if you have held the property for at least two years, you are eligible for long-term capital gains tax, which is currently taxed at 20% with indexation. Indexation is a method of adjusting the cost of the property to account for inflation, which reduces the taxable capital gains. If the property is sold after being held for at least two years, the capital gains are eligible for tax exemption under Section 54 of the Income Tax Act. To avail of this exemption, you must invest the capital gains in another property within the specified time frame or in specified bonds. For example, let's say you purchase a property for INR 50 lakhs and sell it after two years for INR 60 lakhs, the capital gain from the sale would be INR 10 lakhs. If you invest this capital gain in another property within the specified time frame, you can save up to INR 3 lakhs in taxes (assuming a tax rate of 30%).

3. Tax benefits on rental income: If you rent out a property, such as a studio apartment in Pune as mentioned above, the rental income you receive is taxable. However, you can claim a deduction for various expenses related to the property, such as repairs and maintenance, property tax, insurance, etc. You can also claim a standard deduction of 30% of the net rental income to account for other expenses. For example, let's say you receive a monthly rent of INR 30,000 and pay a property tax of INR 2,000 per month. You can claim a tax deduction of up to INR 24,000 (INR 2,000 x 12) on the property tax paid, which can result in tax savings of up to INR 7,200 (assuming a tax rate of 30%).

4. Tax Deduction on Repairs and Renovations: The expenses incurred on repairs and renovations of a property can also be claimed as a tax deduction. This deduction is available under Section 30 or 31 of the Income Tax Act and is subject to certain conditions. For example, let's say you spend INR 2 lakhs on repairing and renovating a property you own. You can claim a tax deduction of up to INR 2 lakhs on these expenses, which can result in tax savings of up to INR 60,000 (assuming a tax rate of 30%).

5. Tax benefits for property developers: If you are a property developer, you can claim deductions for expenses incurred during the construction of the property, such as the cost of land, building materials, labour charges, etc. Additionally, you can also claim a deduction for the interest paid on any loans taken for the construction of the property.

6. Tax Deduction on Property Tax: Property tax paid on the property can be claimed as a tax deduction under Section 80C of the Income Tax Act. This deduction can be claimed along with other eligible and permissible investments, up to a maximum limit of INR 1.5 lakhs.

While there are undoubtedly several developers offering great properties in Pune, BramhaCorp has brilliant one-of-its-kind, luxurious and automated studio apartments, aimed at Gen Z at BramhaCorp Smart at New Kalyani Nagar, Pune. BramhaCorp also offers fully furnished and managed studio apartments ideal for millennials at BramhaCorp Townhouse at Balewadi, Pune.

In conclusion, investing in real estate in Pune can be a great way to grow your wealth and secure your financial future as well as reduce your tax liability and increase your overall returns.