Property Lifecycle: Tax Implications while Buying, Selling and Retaining

Investing in real estate has been proved to be a sure shot way to generate wealth. In comparison to gold or equities, real estate is safer from the long-term perspective. Besides the several other benefits, one important advantage of buying a property for investment purpose is the favorable tax implications. With a wise plan, you can save taxes throughout the life of a property i.e., while buying, while retaining and while selling.Property Lifecycle Tax Implications while Buying, Selling and Retaining


To make home buying easier for the buyers, government offers several types of tax rebates while purchasing a property. If you fund the purchase through home loan, you can claim a deduction of up to 1.5 lakh under section 80C of the Income Tax Act. With respect to the interest on home loan, a tax rebate of 2 lakh is offered by the government under section 24(b) for a self-occupied property. You can deduct the entire interest amount from your taxable income if the property is not self-occupied. However, you cannot claim the same if the property is under construction.


In case you own only one house and it is self-occupied, it does not call for any tax payment. But if you own more than one house, taxation laws differ on the basis of how you use the property. If you have let out the other house on rent, you have to pay tax for it. However, if the other house is left vacant, the income tax act takes it as rented and you have to pay tax on the basis of a notional rental value. There is a definite process of calculating the same. If you want to claim loan deduction as well as House Rent Allowance (HRA), things can get a little tricky there. You can hire a tax specialist, if need be.


You have to pay tax on the amount of profit you earn through the sale of your property. You also have to pay Short-Term Capital Gains (STCG) Tax if you sell the property within three years of acquisition. The amount of tax is inflation adjusted through indexing. If you have inherited the property, tax will be calculated on the cost for which the property was bought by the owner. In order to save LTCG and STCG tax, you can deduct the cost of improvement and renovation and also the cost of stamp duty, brokerage, etc.

Read More About…… Real Estate Scenario to Improve by This Fiscal Year: Global Rating Agency Fitch