Wednesday, 31 August 2016

Realty helps build wealth

It helps you beat the effect of inflation and generate high returns. People invest in real estate for various reasons.

Many buy property for themselves to live in. Owning a property gives on a tremendous sense of confidence. You can save on the monthly rent. Also, you are insulated from the annual hikes in rent and the possibility of having to vacate the house. Further, you can expect to earn high returns over a period of time on your property by way of appreciation in its capital value.

An investor buys property to book profits on its sale after some time. Some may invest in a property to earn a regular income by way of rent from it be it a residential or commercial property.

It is to be noted that investing in real estate is relatively different as compared to investing in other avenues such as Public Provident Fund, fixed deposit, equity etc. The time horizon for an investment is property should be long. It is not a short-term investment avenue. The Income Tax Act, in essence, discourages its purchase and sale over a short term. Under the Income Tax Act, long-term capital gains are taxed at a lower rate. 'Long term' means you should hold the property for more than 36 months. Anything lesser is 'short term' and the general applicable tax rate is levied.

Also, the indexation benefit is available only in case of long-term capital gains. Indexation means factoring in the inflation effect while calculating the cost of the property. For example, if a property was purchased for Rs 10 lakhs in April 2011, when the Cost Inflation Index was 785 and it was sold in March 2016 when the Cost Inflation Index was 1,081, the indexed cost of the property will be Rs 10 lakhs multiplied by 1,081 and divided by 785. That is, Rs 13.77 lakhs. If this property was sold for Rs 15 lakhs, the capital gains will be Rs 1.23 lakhs (Rs 15 lakhs minus Rs 13.77 lakhs) and not Rs 5 lakhs (Rs 15 lakhs minus Rs 10 lakhs).

Further, you can avoid paying the long-term capital gains tax in case you invest the capital gains in a new property and hold it for at least 36 months. This way, you can keep multiplying the gains over a period of time.

It is thus a steady process of building wealth. You should not expect gains overnight from a property investment. But, over a period of time, a property investment always beats the impact of inflation and provides high returns.

Source: PropertyatNeoDevelopers.Wordpress.Com

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