Admit it. You\'ve watched that late-night infomercial describing how you can bec

Question

Admit it. You've watched that late-night infomercial describing how you can become a multimillionaire virtually overnight by leveraging your good looks and sparkling personality (and little else...) to invest in real estate. All joking aside, investing in real estate does present some opportunity for the creation of wealth, much like any other investment does. Taxation of rental real estate, however, does present some unique rules, and these rules can have a dramatic impact on the investor's realized gain or loss from the real-estate rental activity. Let's begin outlining the tax consequences by describing the various capacities in which an individual can own and rent real estate. Asked differently, are there distinctions in the tax law that depend on the manner in which the property is held or used, such as between those who rent real estate as a full-time business and those who merely rent a vacation home? What are the rules that we follow in telling one type of rental property or rental ownership from another?

Explanation / Answer

The answer is based on Indian Taxation rules, as per the Indian Income Tax Act, 1961.

An individual can own a house property in his own capacity as the sole owner or a joint owner. He can also hold the property as a deemed owner. He can use it for personal purposes ( not business purposes) or rent it ( for any purpose).

Tax consequences of the above capacities:

when an individual is the sole owner of the property and uses it for own purposes ( for residential purposes) , it is termed as a self occupied property. There is no tax payable on the same since there is no rental income received.

when an individual is the sole owner of the property and uses it for business purposes, it will not be taxable as income from real estate.

when an individual is the sole owner of the property and rents it ( for residential purposes or business purposes) , it is termed as a Let out property. The owner has to pay 30% taxation on the Annual rent recieved after claiming a deduction of municipal taxes, 30% standard deduction and a deduction for interest paid on loan taken to buy the real estate property.

when an individual is the part owner of the real estate property, his share of income will be taxed at the rate of 30%.

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