Rich using farmhouses to save crores in taxes, legally: CA explains how

High-net-worth individuals taking advantage of a legal loophole in Income Tax Act, according to the financial expert

Wealthy Indians are investing in agricultural land, not only for farming but also to build farmhouses. Such properties, when structured correctly in the law, help them accumulate wealth that appreciates in value and is exempt from tax, said Sarthak Ahuja, a chartered accountant, in a recent social media post. He highlighted how high-net-worth individuals (HNIs) are using farmhouses as a means to make tax-free wealth.

Farmhouses for More Than Just Organic Living

 

“It’s not just for organic vegetables and a big lawn…but to save crores in taxes,” Ahuja wrote on LinkedIn, the professional networking website, discussing the sudden surge in demand for farmhouses among HNIs. He cited examples of Mumbai residents buying in Karjat or Alibaug, Delhi-based investors looking beyond Manesar, and Bangaloreans targeting Coonoor.

 

Agricultural Income is Tax-Free

 

The primary incentive, according to Ahuja, lies in the tax treatment of agricultural income. “Any businessman who has undisclosed cash coming in, can easily tell the tax authorities that they sold vegetables grown at the farm or milk from their farm animals… and keep depositing cash in their bank accounts,” he said.

 

This also results in savings in Goods and Services Tax (GST). “Most farm produce has either zero tax, or a minimal rate of 5 per cent. So both the Income Tax and GST saving can add up to almost +40per cent (sic) tax saving on the amount while making it tax free.”

 

Cash transactions

 

Ahuja pointed out “The Tax Department requires one to submit the PAN of any person who buys something from you in cash for over Rs 2 lakhs… which is completely circumvented because they say many passersby stop by to buy fruits worth Rs five - ten thousand, pay in cash and just go away.”

 

Additional benefits

 

Stamp duty on agricultural land purchases is often negligible, depending on the state. “Just tax benefits in itself can go into over a crore for someone who owns a couple of acres,” he said.

 

Some investors are also monetising the properties. “There’s using the place for private parties, and then putting it on AirBnB for 6–7 days a month to recover the actual cost of maintenance.”

 

Ahuja highlighted benefits under capital gains provisions: “If you sell the piece of land, the capital gains are tax free under Section 54B, and you can invest that money in a bigger piece of agricultural land.”