Tips for tax payers
By Subhash Lakhotia

The author is a Tax & Investment Consultant at New Delhi for the last 40 years. He also conducts a regular TV Show on CNBC Awaaz known as Tax Guru.

Subhash Lakhotia writes in to give you tips on how to achieve the maximum out of real estate investments in the year 2008. What are the best investment decisions, the areas of growth and new sectors coming up. He does some crystal ball gazing into the real estate scenario 2008 and tells you all.

Today a lot of investment is done keeping in mind the tax advantages of such a decision. So what is the best investment decision to go for, in terms of the tax payer?

The Tax Advantage

The common tax payer must first take this important management decision of making an investment in a residential property. Viewed from the tax angle, it would be advisable to buy residential property only by taking a loan. Even if you have money at your disposal, tax-wise it would be worthwhile not to use this money to buy residential property and instead put this money into mutual funds instead. This would lead to a two-fold benefit for you. On one hand you would enjoy tax free income from these mutual funds, while on the other hand, while you invest in a residential house property by taking loan you would enjoy tax benefits on this.

One is hopeful that the provisions contained in the Income-tax Act, 1961, will not be altered or amended by the 2008 Budget. Then the tax payers would continue to enjoy the benefits of deduction in respect of housing loan interest to the tune of Rs1,50,000 per annum. This would give the tax payers the benefit of cutting down their income-tax payment by almost Rs 50,000 per annum.

Hence, when you plan your strategy of investment in real estate for the year 2008, do try to make it a point that every tax payer in the family should aim at buying one residential property in his or her name so as to achieve the tax benefit arising from deduction on account of interest on loan as also tax deduction consequent to repayment of the housing loan. In the year 2008 one can reasonably expect that both these deductions would continue in the statute book and thus help tax saving to the individual tax payer.

Even if you already have a residential property in your family, where you are living, it would be beneficial in terms of tax, to go for a residential property, in the names of those family members, who do not own a residential property as of now. If we keep the focus on tax planning, then the investment scenario in real estate should be focused towards buying a residential property for tax gain. Investment in a commercial property will not bring any tax advantage to you. Even if you do not require a residential property, but invest in the same, then you save your income-tax today, while in the years to follow the market value of your real estate would appreciate. In effect, there is no loss to the tax payers in investing in a residential property

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