How investment in real estate can help you save taxes

Real-estate investors can save a sizable portion of their profits by referring to the tax exemptions in Section 54 and Section 54F of the Income Tax Act.

The sale of house property does attract capital gain tax, it can be waived off as per the exemptions mentioned in Section 54F of the IT Act.

Tax burden can deter you from making optimum savings or investments. Therefore, there are numerous tax-saving strategies to help you keep the lion's share of your income. While there are several tax exemptions in the Income Tax Act, investing in real estate is one of the most efficient methods of saving taxes and also ensuring that you withstand the losses due to depreciation, if any.

How real-estate investors save taxes

The most popular easy ways in which real estate investors can claim tax deductions are:

Depreciation: Most assets come with a depreciating value and depreciation can be your key to saving taxes. Depreciation refers to the loss in value of an asset over time and real-estate investors can deduct this amount by showing it as an expenditure in their financial statements. This would lower the amount of tax payable during the year. While this may seem a small initiative, it can actually help save a significant portion of the investor's earnings.

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Investing In Agricultural Land: India has always been supportive of agricultural activities and investing in agricultural land could be the best way to leverage the benefits that come with it. It's one of the first choices for real-estate investors as no tax is levied on the sale of agricultural land, which is one of the most important and appealing tax exemptions.

Tax saving becomes easier in such cases as no capital gain tax is imposed on such a sale since agricultural land isn't classified under capital assets, according to Section 54 of the Income Tax Act. Moreover, owning agricultural land can open the gates for attractive returns as it can be used for organic farming and could also be leased out on rent to farmers.

House Property Tax Exemptions: While the sale of house property does attract capital gain tax, it can be waived off as per the exemptions mentioned in Section 54F of the IT Act. In case the acquired money from the sale of residential property is reinvested in a house property within three years of purchase, no tax is to be paid on that amount. Moreover, if an investor has invested in a residential property one year prior to selling a capital asset then the capital gain tax is exempted.

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