Tax on Property Income: The house is considered suitable for both residence and investment. This can provide a source of regular income in the form of rent. However, they also have tax liabilities…
Many people turn to real estate for investment. Even in real estate, there are many people who like residential property i.e. houses. There are usually two benefits of this type of investment. One is that it provides a source of regular income in the form of rent, and second is that the value of the property increases with time and thus gives excellent returns.
Income earned from home is not tax free
However, like other earnings, this too is not tax free. If you are earning from home then your tax liability is arising. Whether your income is from rent or from selling the property after some time, tax liability arises in both the cases. The method of tax liability is different in both the cases. Today we are going to tell you about this in detail.
Tax on income earned from selling
First of all, let’s talk about the income from selling after some time. The profit made from selling a house i.e. capital gain is taxed in two ways. If the house is sold after owning it for 2 years or more, it will be considered as long term capital gain. Capital gain amount will be taxed at 20 percent after indexation benefit. At the same time, the profit made by selling the house before 24 months will be considered as short term capital gain. This profit will be added to the regular income of the person and tax will have to be paid as per the tax slab.
How can you save tax money
In some cases, tax can also be saved here. Section 54 of the Income Tax Act provides relief from tax on buying another house from the income earned from selling an old house i.e. capital gain. This benefit is available only in case of long term capital gain. Income Tax law believes that in such cases the objective of the seller is not to earn money by selling the house, but to find a suitable home for himself.
What kind of property will you get tax exemption on buying?
Section 54 of the Income Tax Act makes it clear that capital gains should be used only for purchasing or constructing residential property. This means that tax exemption will not be available on purchasing commercial property. In case of land, exemption equal to capital gains tax can be claimed on purchasing a plot of land and constructing a house on it. Tax exemption will not be available only on purchasing land. From the financial year 2023-24, tax exemption can be availed only on capital gains up to Rs 10 crore by investing in residential property. Long term capital gains tax will be levied on profits above this amount.
How long will it take to buy residential property?
Under Section 54, to avail tax exemption, a new house has to be purchased within 2 years from the date of transfer of the old property. Whereas, in case of construction, the house should be built within three years. If you buy a new house even a year before selling the old property, you can avail the discount.
Tax liability on rental income
Whereas if your earning is in the form of rent then you will have to show it in your income tax return. This can be shown in Income from Other Sources. This earning will be added to your other earnings and after that you will have to pay tax according to the tax slab that will be formed. Taxpayers do not show such earnings honestly, which is why PAN card has been made mandatory if the fare exceeds a limit.
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