One very important query in all doc conferences is “Our practice is good, but it may go down..so buying a property and creating a second source of ‘rental’ income makes sense no? 

The answer is very simple.

When you want to create a second source of income you need to create a secondary asset. The secondary asset has to give you either a current income (like bank fixed deposit), or income and capital appreciation (equities and rental property), or pure appreciation no current income (like precious metals and unutilised land).

Now Income is taxed – as current income (rent, interest) or as capital gains (equity, land). The current income is one of the worst – it gets taxed as regular income and at regular rates. So it makes more sense to reduce CURRENT INCOME and instead increase deferred income (or unrealized tax free / tax deferred income).

So it actually means you should invest in equities (tax free dividend and tax free appreciation income) or in mutual funds Income options (debt schemes growth option) instead of Real estate. This is because RE income cannot be deferred and will be taxed at normal rates.

I hope I have made myself clear. Please check and keep checking www.subramoney.com for such sensible answers to a very very typical doctor query.

Tax saving with real estate? Create wealth with real estate?