Making Money In Real Estate? These Transaction Are Tax-Free

Making Money In Real Estate? These Transaction Are Tax-Free

Making Money In Real Estate? These Transaction Are Tax-Free

Volumes have been written about Indians' love for real estate and their insatiable desire to possess as much immovable property as they can. This investment is then used to generate further income. Understandably, those making money in real estate also have to pay a great deal of money as taxes. However, there are certain real estate incomes that go tax-free.

We list here six of them.

Farmers do not have to pay taxes on their agricultural income

Are you a farmer earning a handsome income through agriculture? Sweet are the uses of all the adversities you face in the process because the government is not going to tax your income.

Do note here that all taxpayers in India have to pay taxes, depending on their slab. While those earning up to Rs 2.5 lakh are exempt, those earning an income between Rs 2.5 lakh and Rs 5 lakh have to pay five per cent tax on their taxable income. For instance, if you are earning Rs 3 lakh as your annual income, Rs 50,000 is your taxable income. Additionally, three per cent of the income tax amount has to be paid towards education cess.  While annual income of between Rs 5-10 lakh is taxed at the rate of 20 per cent, plus education cess, annual income over Rs 10 lakh is taxed at 30 per cent, apart from the standard education cess.

Now, Section 10(1) of the Income Tax (I-T) Act sets you free from this burden of agricultural income. To claim the exemption, you have to prove that the profit has been made using the land for agricultural purposes. This includes processing of agricultural produce. Money earned through farmhouses is also agricultural income, subject to certain conditions specified in Section 2(1A) of the Act.

 Did govt acquire your farmland? No need to pay capital gains tax

As government steps up the work on infrastructural development, many farmers have to let go of their agricultural land to give way for newer developments. Typically, one has to pay capital gains tax on sale of their landed property. However, in this case, the amount the farmer receives as compensation from the government is kept exempt from tax under Section 10(37) of the I-T Act. There are, however, two conditions that should be fulfilled to claim the benefit:

  • The land should have been used for agricultural purpose for the two years, preceding the date of transfer.
  • The compensation should have been received on or after April 1, 2004.

Those earning money through family estate do not have to pay tax

You may have your share in your ancestral property, but are you liable to pay taxes on the income that is being generated through the family estate? The answer is no. For a Hindu Undivided Family (HUF), the income arising out of undivided property is exempt under Section 10(2).

Borrowers do not have to pay tax on reverse mortgage

Many of us buy property in our youth to guard ourselves in our old age. Going for reverse mortgage is one way to do that. In such a system, you mortgage your property to earn a monthly income. Such borrowers, says Section 47(XVI) of the I-T Act, do not have to pay tax on the amount they receive as loan.

Own a palace? You do not have to pay tax for the first property

Royals still enjoy certain benefits in India. For instance, the annual value of one palace in the occupation of a former ruler is exempt from tax under Section 10(19A). However, if a ruler owns more than one place, he will have to pay taxes for the second property onwards.

Real estate investment trusts are exempt, too

While they have yet to become popular in India, real estate investment trusts (REIT) do enjoy tax waivers. The income they generate through renting or leasing properties owned by them is exempt from paying taxes under Section 10(23FCA).

Last Updated: Fri Sep 29 2017

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