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Title:Real Estate indianmoney
URL:http://real-estate.indianmoney.com/38-residential-apartment/902-know-your-real-estate---every-man-is-the-architect-of-his-own-future---indianmoney-com/Read-Article.html
Category:Arts
Description:One has surely heard the famous saying “The Greatest Investment On Earth Is Earth” .You must be wondering what was the rationale behind such a great saying. There is no investment that appreciates like land ,be it a plot or an apartment. The last few years have been categorized by the saying “Real Estate Rises like a Phoenix”. However for any investment to remain profitable in the long run caution is the watch word. One needs to know what one is buying and take precautions to see that he is not cheated when buying a possession which can be called as the single greatest possession he owns .It would be wise to remember this great saying “Don’t Wait To Buy Land, Buy Land And Wait. How To Make Your Money Work For You? Nowadays one doesn’t stop at the purchase of a single home. Second homes known as holiday homes are the norm .However one must resist that urge to buy a second home just on impulse. Many times one purchases a home based on whims and fancies. My neighbor has a second home .I Want It Too? Always do your groundwork before making the purchase of that second house. If one purchases a second home in a hurry without checking its affordability he might get a house which doesn’t fit his needs and will have to regret his decision at leisure. One needs to remember a famous saying when purchasing a second home.”Even A Dog Is A Lion In Its Own Backyard”. It is best to hire a local agent who is well familiarized with the area. It is always good to visit the area and talk to the locals to get an idea about the true nature of the land or house one is going to purchase. Remember one needs to set aside sums of money for the maintenance and insurance of that second home. Always keep aside at least 2% of the amount spent for the purchase of the house for maintenance and emergency repairs. Remember to focus on rental yield which is a very important factor in the purchase of that second house. So What Is Rental Yield? Let us consider that one has purchased a second house at the cost of INR 40 Lakhs .One can rent this house for a price of INR 2 Lakhs per annum. The rental yield for this house is INR 2 Lakhs divided by INR 40 Lakhs which is 5%.Another fruitful application of buying a second house is the capital appreciation of that second home. One can get a neat profit of rental yield and capital appreciation by selling that second house after a period of time. What Is The Taxability Of Rental Income Of That Second Home? One wonders what are the tax implications of the rental income on the second home which is rented out .Let us assume Mr Mahesh 40 Years of age owns two houses in Mumbai. One at Vashi in Navi Mumbai and the other home at Borivali West in Mumbai. Mr Mahesh stays at the Borivali flat and gives the Vashi Flat for rent at the rate of INR 3 Lakhs per annum after deducting municipal and other standard taxes. So What Are The Tax Implications In This Case? Mr Mahesh will have to pay the tax on his rental income earned on his Vashi Flat .If Mr Mahesh a salaried employee earns INR 8 Lakhs and receives rent of INR 3 Lakhs the total income earned by Mr Mahesh is INR 11 Lakhs per annum and he is taxed at the rate of 30%.Mr Mahesh makes use of deductions of INR 1 Lakh under Section 80 C for investments made in the Public Provident Fund and deductions of INR 35000 under Section 80 D for the health policies taken for himself his elderly parents and his spouse. Now his taxable income is INR 9.65 Lakhs and this amount is taxable at 20%. Let us consider the notional rent for the Borivali Flat is INR 5 Lakhs per annum and the notional rent for the Vashi Flat is INR 3 Lakhs per annum. In this case Mr Mahesh has the option to select any of the properties as self occupied. The other property will be treated as deemed to be let out and taxed as per the estimated annual rent. Mr Mahesh stays in the Vashi flat and his family stays in the Borivali Flat. Mr Mahesh has the option to treat either of the two flats as self occupied and the other is deemed to be let out. The Flat considered to be let out will be taxed as per the estimated yearly rent. Mr Mahesh will treat the Borivali flat as self occupied because the notional rent is INR 5 Lakhs which is higher than the notional rent of the Vashi apartment which is INR 3 Lakhs. So Mr Mahesh will have to pay tax on the estimated rental income of INR 3 Lakhs after deducting municipal and standard taxes on his Vashi Flat. Let us assume a third case in which one of the flats is self occupied and the other flat is vacant .Then even though this Flat does not generate any rental income Mr Mahesh has to pay taxes on the estimated rental value of the unoccupied flat. Deductions are available as per the Income Tax act 1961 for the municipal taxes paid during the year. All expenses such as insurance, repairs and annual maintenance of the house avail a deduction of 30% as a flat standard deduction irrespective of the expenses actually incurred If a loan is taken for purchasing the second property then the annual interest paid on the loan is available as a deduction. This deduction is available irrespective of whether the property is given for rent or not. In case the property is given on rent the entire interest amount is tax deductible irrespective of whatever this amount is. In case the second house is not rented and kept vacant then the interest amount on your home loan which is deductible is INR 1.5 Lakhs .One needs to note that wealth tax has to be paid on the second property as only a single unit is exempt from wealth tax. However if the second house is given on rent for a minimum period of 300 Days in a year no wealth tax needs to be paid. What Happens To Capital Gains On Your Second Home? Let us assume that Mr Mohan had purchased a second house for INR 40 Lakhs for investment purposes and then sold this house two years later for INR 50 Lakhs. The profit of INR 10 Lakhs is known as Capital gain .So What Are the Tax Implications of the Capital Gains? If the house or property is sold before a period of 3 Years it is known as short term capital gain. This amount is added to Mr Mohan’s regular income and is taxable as per the tax slab he falls under. In this case an amount of INR 10 Lakhs is added to Mr Mohan’s taxable income. If a property or a second home is sold after a period of 3 years the profits earned are known as Long Term Capital Gains. These amounts are taxed at the rate of 20% after indexation. Indexation basically factors in inflation and the acquisition cost of the house is recalculated. This brings down the amount of taxation. This amount is then added to the taxable salary based under which slab the individual falls under .As per Section 54 if one were to invest the capital gains in a residential property within two years of sale or constructs a new house within three Years from the date of sale then the capital gains are exempted from long term capital gains tax. However one should not own more than one house apart from the house he is investing in. The investment has to be made in residential property only. The profit arising from capital gains can be invested in capital gain bonds which have a lock in period of 3 Years up to a maximum limit of INR 50 Lakhs. These bonds may be REC or NHAI Bonds. The capital gains invested in these bonds are fully exempted from tax.
Link Owner:C. S. Sudheer
ID: 72529
  72529
Pagerank:N/A
  http://real-estate.indianmoney.com/38-residential-apartment/902-know-your-real-estate---every-man-is-the-architect-of-his-own-future---indianmoney-com/Read-Article.html
 

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