One of the most reliable approaches for Indian wealth building is property purchase. Many buy land, stores, or houses not for use but rather for rental or profit later on. We consider these to be investment properties. To better plan and prevent any tax surprises later, it’s crucial to first understand the investment property tax rules.
An Investment Property: What is it?
Investment property is any real estate you purchase for use outside of your personal residence. This may comprise:
- Rent a second flat you own
- Like offices or stores, commercial property
- Land kept for profit later on
According to specific investment property tax rules, income from these properties is taxable.
Tax on Rental Income
Should you lease your investment property, the rent you collect is treated as house property income. It operates as follows:
- Determine Gross Annual Value (GAV), often the rent collected.
- Subtract municipal taxes paid (should any exist).
- Apply a 30% standard deduction—no bills required—here.
- Deduct home loan interest, up to ₹2 lakh for self-occupied (no limit for rented).
According to the investment property tax rules, this helps lower your taxable income.
Capital Gain Tax (Should You Sell the Property)
You might have a capital gain—also taxable—when you sell an investment property. Different kinds of capital gains:
- In the short run: Should you sell within two years of purchase, taxed according to your income slab.
- Long term: Taxed at 20% with indexation benefit; sold after two years.
Investing in another property will help you lower your taxes (Section 54). Stated in Section 54EC under Capital Gains Bonds, putting gains.
Under the current investment property tax rules, these choices are extremely helpful.
GST and Real Estate for Investments
- GST is not applicable for sold completed properties.
- GST at either 5% (residential) or 12% (commercial) may apply if you purchase under-construction property.
- No GST on household use for rent.
- If commercial rent runs above ₹20 lakh yearly, GST is liable.
Other Relevant Tax Laws
- Your ITR has to show all property income.
- Purchase deeds, home loan documentation, rent agreements, etc. keeping correct documentation.
- Depending on expected rent, vacant property could still draw taxes (in some cases).
- Additionally, you might have to pay local municipal authority property taxes.
Thought Notes: Final Thoughts
Don’t disregard the investment property tax rules just because owning property can provide steady income and future profits. Knowing these guidelines will help you avoid penalties, save tax, and make better decisions whether you intend to sell later or rent it out. Just as with your other money, plan your property investments with complete awareness and accurate documentation.
