Maximize Real Estate Tax Benefits: A Tax-Savvy Guide To Save More With New Tax Rules of 2025

As time progresses in 2025, both homeowners and investors alike have actively begun to consider tax efficiency on real estate due to evolving instruments and regulations. Be it traditional property, Real Estate Investment Trusts (REITS), or even fractional ownership, every type of investment has the potential to enhance the return with maximized deductions and optimized tax outgo.

A commonly exploited benefit available to Indians, specifically for self-employed citizens, is Section 80C of the Income Tax Act. It provides a home loan borrower a deduction of up to Rs 1.5 lakh annually on the principal repayment of the loan. Vibhavangal Anukulakara Private Limited's Founder & Managing Director Siddharth Maurya further explains, "Section 80C remains a cornerstone for tax planning in real estate, providing an extendable limit of claiming repayment on loans helps give investors build equity and enjoy far-reaching tax benefits."

In addition to principal repayments, other deductibles like interest on loans are available under 24(b), like under rented properties, there is no cap on interest deductibles, while self-occupied properties allow investors to claim up to Rs 2 lakh per annum. In addition, interest on under construction properties can be claimed in 5 payments spaced after the property completion, making joint ownership and co-borrowing a great value for investors as partnered families or business partners now have access to a stronger tool for claiming these benefits.

RPS Group's Director, Aman Gupta, said, "As long term investments, real estate properties have become meticulously preferred due to their ever increasing value alongside interest rates. Tax benefits as stated in Section 24(b) provide greater deductions and value for initial buyers and seasoned investors alike."

Real Estate Investment Trusts or REITs diversify the market and eliminate the need for direct ownership of a property, thus making them favorable for those looking to invest without the hassle of managing an estate. A 10% tax deducted at source is implemented on annual payouts that exceed Rs 5,000. Moreover,REIT dividends are taxed at the slab rate of the investor, which binds them to further taxation of 12.5% on LTCG if the gains exceed Rs 1.25 lakh in a financial year. Gains from the sale of REIT units held for less than a year are subject to 20% taxation under the Short-Term Capital Gains (STCG) regime. Accompanied by pass-through structures, these features provided with the unit guarantee non-double taxation, providing higher efficiency for passive income and diversification.

The concept of fractional ownership, where multiple investors jointly revel in owning a single property, seems to be picking up momentum. Here, the tax treatment is based on a proportionate share of each co-owner, allowing each of them to claim appropriate deductions per Sections 80C and 24(b). While this approach has greater flexibility and lower barriers to entry, it requires complete and precise records of ownership to prevent disputes and ensure compliance. On the other hand, traditional property investment comes with higher deduction limits and higher capital appreciation potential, accompanied by significant upfront costs, illiquidity, and the hassle of active property management.

To conclude, the real estate tax regime in 2025 presents numerous prospects for optimizing tax expenditures. With careful planning, traditional property investors can maximize deductions using Sections 80C and 24(b) with joint ownership structures, and even capitalize on pre-construction interest benefits. REITs give investors a cost-effective way to gain liquid and diversified exposure to real estate, while fractional ownership facilitates shared access and distributed risk. In the words of Siddharth Maurya, "Modern tax policies are closing the gaps between asset classes, allowing investors to use constructive portfolio design to achieve both tax competitiveness and market adroitness." With strategic navigation of the most recent policy changes, investors can ensure that their real estate holdings are constructed in a way that not only preserves wealth but also does so in an optimized tax strategy.

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