Also Read: Worried broker queries FM Nirmala Sitharaman about high taxes in share market, real estate. She replies…
Shenoy, who is the CEO of SEBI-registered portfolio management service (PMS) Capitalmind.in explains that one can offset long term capital gains in anything by buying a house. According to Shenoy, here’s how the taxes in the sector are not large:
-”The stamp duty and GST are effectively your “cost” of the house and when you sell the house, you only pay tax on the profit after you deduct these charges.
– You get the lowest interest rates on housing loans because for a silly reason the government wants to promote that versus actual businesses that give jobs.
– You get to offset interest on housing loans upto 2.5 lakhs per year from your income even from salaries – you don’t get that when you borrow to buy a car, for example.”
Shenoy went on to add that on goods and services tax (GST), most of us pay a lot more for what we spend on; even haircuts have a 18 per cent GST. ‘’Meanwhile, real estate people are cribbing about five per cent GST and that too only on under-construction projects (ready houses have no GST),” he said.
Stamp duties in the range of five-seven per cent go to state governments, not to the centre. But that’s only on registration. ‘’How much do you pay in property tax in India annually?,” he asked in his post. ‘’Next to nothing”.
A house costing Rs. 2 crore in Bangalore has a Rs. 10,000 per year property tax. So they collect at the time of registration, a quasi form of taxation that is loaded at transaction time rather than annual, according to Shenoy.
In comparison a San Franscisco charges one per cent to 1.5 per cent annually, but the transfer charges are usually sub one per cent only. A real estate broker is actually a business, so they pay tax only after they pay their employees, bear their business costs etc. Businesses pay taxes after expenses.
So in this instance, real estate folks are really privileged in terms of tax treatment. Such a statement can easily come instead from salaried people. They are the lowest in the food chain. ‘’Pay full taxes before you get any money. Then pay GST when you spend. Therefore, tax increases hurt a lot more. Instead, you benefit if you just become a consultant to your organization. You charge GST to your employer-turned-customers,” said the CEO of the PMS fund.
‘’You offset that with some of the GST you pay (electricity, computers, phone bills, even rent) for the most part. Much of your expenses, where they may help in your ‘business’ (which is what you do now) is reduced from your income. Heck, if you make less than 75 lakhs as a professional or Rs. 3 crore as a business, you can presume 50 per cent of your income to be expenses,” he added.
Also Read: India’s government debt at safe levels: Nirmala Sitharaman
So a tax rate of 30 per cent as an employee becomes 15 per cent as a consultant. Shenoy added that one also gets to reduce certain expenses they would incur anyhow. ‘’Plus you get to offset GST also. It’s like a form of personal leverage that the government rewards you for in the form of lower effective taxes,” he said. But most people want the “security” of being employees, so they will pay the higher taxes and remain at the bottom of the food chain.
Ending his ‘’rant”, Shenoy said, ‘’Yes, taxes are higher; and we should demand some leeway (a lower rate of GST perhaps, as collections increase). But we could actually reduce our tax bill, for the most part, through things the government allows us the freedom to do.”
‘’For the record, I’m an employee, so I’m guilty too, but regulatory restrictions don’t allow a consultancy approach – but I’m also a business owner and the greater gains, perhaps, are in the capital gains as the business grows”, concluded Shenoy.
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Published: 16 May 2024, 09:37 PM IST