Real estate, despite its inherent cumbersome nature, is one of the most popular investments in India. Since the basic investment for real estate is often high, the taxes associated with it also tend to be steep. However, smart planning can go a long way in bringing down the overall tax outgo on real estate to a bare minimum.
Buy and sell Real Estate via REITs
Until Real Estate Investment Trusts (REITs), real estate investment sans a home loan was out of the reach of most middle-class investors. With REITs, one can invest in real estate for as low as Rs 10,000. REITs pool funds from multiple investors to finance income-generating commercial properties. Though investors technically don’t ‘own’ the properties, they have a right to the income generated from such a property. With REITs, a retail investor need not pay registration charges and property tax but can still stay invested in real estate.
REIT units are tradeable on the stock exchange, and gains from their sale attract Short Term Capital Gains (STCG) or Long Term Capital Gains (LTCG). To avoid tax on the sale of REIT units, investors can sell a limited number of units at a time after a certain period to ensure the overall LTCG is less than Rs 1 lakh. This is a big advantage of REITs, unlike brick-and-mortar properties that cannot be sold as piecemeal units (one cannot sell or buy one room of a house at a time!).
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Avoid GST
Another way to avoid shelling out big money for tax is to opt for a read-to-move-in property. At present buyers of ready-to-move-in properties that have got an Occupancy Certificate don’t need to pay GST. However, it should be noted that ready-to-move-in properties cost much more than under-construction ones but overall the risk is low as a buyer can check what is being offered.
Opt for fractional ownership
Fractional ownership is another up-and-coming way of buying real estate when you cannot afford the entire cost of a property. It refers to a group of people pooling funds to buy a certain property. They then manage the property on their own or appoint a company/trust to do so. As a fractional owner, an individual may have to shell out as low as 5% to 10% of the property cost depending on the total number of owners. It not only makes pricey property affordable but also helps reduce the various taxes that an individual investor has to pay for such a property.
Invest in agricultural land
A lot of tax relief is offered to those who buy or sell agricultural land or use such land for any income-generating activity (farming, animal husbandry). However, there are several caveats around the exemptions and not everyone can buy agricultural land. Moreover, the location of the agricultural land also determines the tax exemptions. If such a land is an area categorised as urban, then it is an urban agricultural land and the exemptions may be limited or nil.
Moreover, each state has its own set of rules concerning agricultural land and any investment in such land should be made only after a thorough study of the same. Unless you are well-versed in the law or are keen to take up agri activities, this option is not for everyone.
(By Rishabh Siroya, Founder of Siroya Corp and President of NextGen Committee, NAREDCO, Maharashtra)