Tax Saving Tips in India - Real Estate Investors

Tax Saving Tips in India - Real Estate Investors


Paying Income tax is one thing, which most of the people do not like. Everyone tries to minimize their income tax by some or the other means. So today, I will be sharing with you list of some income’s which are 100% tax-free in your hand.


Yes – you heard it right. If you earn these income’s, then you do not pay any income tax on them at all. This article is mainly for information purpose, because I have seen many investors who are yet not clear on the taxation rules of few income’s.


1. Interest on saving bank interest – upto Rs 10,000 a year


From 2013 onwards, a new section 80TTA is introduced under which, the interest on your saving bank account upto Rs 10,000 is not taxable. So if your saving bank interest for a year is Rs 20,000. Then out of that Rs 10,000 is exempted and only the rest Rs.10,000 will be added to your taxable income.


This is a great relief for tax payers, because it was really a big headache to find out the saving bank interest from all the accounts and add them up and pay income tax, because for most of the people, it would be few hundreds or thousands of interest income. Now that is gone!


2. Interest earned in NRE account


Any interest you earn on your NRE account is 100% Tax-free in India. Here we are talking about both, the Fixed Deposit and normal saving bank interest. Both of them are tax free for NRI. NRE deposist’s are a great way to earn a decent interest on the savings done by NRI. Some of our clients even go an extent of taking loan from the country they are working in because they get it at 2-3% and then reinvest the same in NRE deposits here in India where they earn around 8-9%. Also because there is no tax, hence TDS is also not applicable to the NRE account deposits.


And the best part is that the money in NRE accounts is repatriable, means if you are in US and you invest some money in India in your NRE account, the principle and interest money can be taken back to US.


3. Share of Profits paid to partners in firm


If a partnership firm earns some profit and instead of retaining it within the partnership firm, its paid to the partners as a share of profits, then its tax free in the hands of the partner, because the tax is already paid by the firm on it. So is Mr. A and Mr. B are partners in a firm, and they get 5 lacs each in a year as the share in the profits earned by the firm, then it will be tax-free in their hands. Note that if they are receiving any salary from the firm, then its taxed in their hands only.


I would like to request that as this is related to corporate tax, please consult a qualified CA on this issue.


4. Maturity or Claim amount received by Life Insurance Company


The money you get from life insurance companies on maturity, claim or surrender is 100% tax-free provided, the premium paid did not exceed 20% of the sum assured. I am quoting new amendments which have come in recent years


As per amendments introduced in the Finance Act, 2003, (i.e., with effect from April 1, 2003), any proceeds received on account of maturity/surrender of an insurance policy were exempt from tax only if the premium paid did not exceed 20% of the sum assured. As an example, if the annual premium is R10,000, to qualify for exemption, the minimum sum assured under the policy was required to be R50,000.


If the sum assured was less than the said value, the entire maturity proceeds would be taxable. Such limit of 20% was later reduced to 10% by the Finance Act, 2012, (i.e., with effect from April 1, 2012) to increase the insurance coverage amount, i.e., the sum assured threshold was increased from a minimum of five times of annual premium to 10 times. For policies taken on the life of a disabled person or person suffering from certain ailments, the limit was relaxed to 15% of the sum assured with effect from April 1, 2013.


5. LTA money received from Employer


Most of the companies pay LTA each year to their employees, which can be utilized for travelling purpose. This LTA is not taxable in hands of the investor provided they provide the proof of travel. So if your company is not paying you any LTA, ask them to restructure your salary and label some part as LTA, because almost everyone spends a minimum amount traveling in a year.


For example, if you are getting a salary of Rs 5 lacs and there is no LTA in your salary component, you can ask your employer to label 20k as LTA and rest 4.8 lacs as other components, this way you will be able to save tax on that 20k part at least.


6. Money got under VRS scheme upto Rs 5 lacs


If a person takes VRS (Voluntary retirement scheme) than any amount received up to Rs 5 lacs is income tax-free. However, not everyone is eligible for it. Only employees of Public sector companies or an authority established under a Central or State govt is eligible for this.


7. Money received from your EPF account after 5 yrs


The money one gets from their EPF account is also tax-free, provided the money is taken out after 5 yrs of service. A lot of times investors change their jobs in 3-4 yrs and withdraw their EPF money only to realise that they could have timed their withdraw in better manner and save 30% of their EPF money which went into income tax (assuming they are in 30% tax bracket).


8. Profits from shares or equity mutual funds after a year


When you earn any profits from your shares or equity mutual funds after holding it for minimum 1 year, its called Long term Capital gains, and its 100% tax exempt as per current tax rules.


For example, if you invest Rs 1 lac in shares and after 2 yrs its worth is now Rs 2 lacs. In this case when you sell your shares, you will not be paying any income tax on this Rs 1 lac profit because of long term capital gains rules. However, it’s important to know that exemption is allowed only when Security Transaction Tax (STT) has been paid (which is paid by you when you buy on recognised stock exchange such as BSE or NSE). But if you do a, out of exchange sales, then STT might not get paid and hence in future when you sell shares, you will have to pay tax on profits.


9. Dividends received from your shares or equity mutual funds


You receive dividends from your stocks or equity mutual funds (dividend option). That dividend money you get is also tax-free in your hand. However, the bad side of the story is that company anyways pays the dividend distribution tax to govt before giving the dividends to its shareholders. Hence, anyways we are getting slightly less share of profits in our hand anyways.


10. Amount received by way of gift on marriage


Any amount you get as gift in your marriage is tax free. So your friends, relatives or any random person can gift you any amount or something valuable as a gift on your marriage, and it will be non-taxable for you. Just make sure that the timing is matched with your marriage and the gift date. It should not happen that you get some gift after 2 yrs of marriage and you try to justify that it was a gift for your marriage.


Its like this, If you are getting a gift of Rs 10 lacs from a friend (which is nearly impossible), ask them to hold on for a while and gift it to you after few months or a year when your wedding is in place and you will save a lot of taxation issues


11. Any amount received through WILL or Inheritance


There is no inheritance tax in India now. So any-thing you get in inheritance through WILL is not taxable in your hands. It becomes your property and now when you invest that money, only the interest part earned on that property will be taxed.


And Many more


Note that, it’s not possible to list down each and every income which is tax-free. Here I have listed some income’s which I think most of the investors should be aware about this. There are many other things which are not taxable, but it applies to certain section of investors.


Please consult and verify with your Auditors / Tax consultants for the latest amendments / provisions and act as by their expert advice