The Structure of Taxes in the Real Estate Sector

The real estate sector is considered one of the safest investment sectors for the investors of India. It ensures a good return on investment. As it is an income-generating economic sector so evidently there will be some taxes on real estate.

Now before going to invest in real estate, it is very important to know the details of tax structure in the real estate sector. Because if you do not have efficient knowledge about the tax structure then you can face severe financial losses.

On the other hand, if you have sufficient knowledge of the structure of tax in real estate then you can choose the best investment option suitable for you. It will also ensure financial benefits.

If you are looking for the structure of taxes in real estate then you are just in the right place because in this blog, we will discuss the structure of taxes in the real estate market of India.

Tax Structure in Real Estate

In Indian real estate market there are mainly three kinds of taxes, such as

Rental Income Tax
Capital Gains Tax
Property Tax

Rental Income Tax: The real estate assets that are used for rent generating are subjected to rental income tax. The landlords need to pay taxes upon their rental income. Both the residential as well as commercial real estate properties are subject to rental income tax.

However, there is a tax deduction on rental income tax to promote real estate investment on various rental properties and a 30% standard deduction is available in the Indian market on the total annual rental income. A standard 30% deduction on rental income is also made available to the landlord so that they can overcome their financial losses due to repairing or renovation of their rental property.

Example: If the annual rental income is Rs 100 then you need to pay income tax on Rs 70 after a standard 30% deduction.

Capital Gains Tax: The income generated from the sale of various kinds of real estate properties is subjected to income tax and this tax is known as Capital Gains Tax. If the property is inherited and not sold then you don’t need to pay the capital gains tax. Capital gains tax is further divided into two subcategories,

Short-term capital gains tax
Long-term capital gains tax

Short-term capital gains tax

If the real estate property is held for a duration of fewer than 24 months then the profit generated through sell will be considered as short-term capital gains and it will be subjected to fall under short-term capital gains tax.

Long-term capital gain tax

If the real estate property is held for a duration of more than 24 months then the profit generated through the sale will be considered as long-term capital gains and will be subjected to fall under long-term capital gains tax.

Property Tax

The property tax is one kind of tax that you need to pay to the owner of the property like land, building, house etc. to the local government authority on an annual basis. The rate of tax largely depends on the location of the property.

For example, if the property is situated in urban areas, then the tax rate will be (generally) higher than the rate that would have been charged from the same property if it had been situated in a rural area. Property tax is mainly calculated based on the total property value where the locational factor, as well as the size of the property, become important.

On a Final Note

In real estate, there are several taxes. To ensure a good return on investment you need to research well about these taxes before going to invest in any property. A successful real estate investment depends on a large number of factors but surely a sufficient knowledge of the structure of taxes in real estate will help you choose the best investment option in real estate.

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