Investment banker shares how the rich are using farmhouses to build tax-free wealth as the middle class chases affordable 2 BHKs

Time of India

05-05-2025

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The trend of wealthy Indians buying farmhouses is on the rise. What was once a luxury for a select few has now become a more widespread investment choice. Investment banker, Sarthak Ahuja in a LinkedIn post, highlighted that the appeal is not just in the lifestyle benefits — such as fresh organic produce and large spaces — but also in the significant tax savings that come with owning agricultural land. From Mumbai to Delhi, and Bangalore to Coonoor, this growing interest in farmhouses is reshaping the real estate market.One of the primary reasons driving this boom is the tax-free status of agricultural income in India. Wealthy business owners, who may have undisclosed income, find it easier to explain large deposits in their bank accounts by claiming they are earnings from farm produce. As one investment banker points out, "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, also saving GST on it because most farm produce has either zero tax, or a minimal rate of 5%."This creates an opportunity for tax savings that could add up to more than 40% of the total income.Another advantage of owning agricultural land is the ability to bypass certain tax regulations. "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," explains the investment banker. This creates a loophole for those looking to save on tax scrutiny.In addition to tax exemptions, buying agricultural land typically involves low or negligible stamp duty, depending on the state. "Buying a piece of agricultural land also has nil or negligible stamp duty expenses depending on the state," says the banker. This adds another layer of savings for those looking to make large land purchases. For individuals owning a couple of acres, the overall tax benefits can easily exceed Rs 1 crore, making it an attractive financial decision.While farmhouses offer a private retreat for wealthy owners, they also provide opportunities for income generation. "Then there's using the place for private parties, and then putting it on AirBnB for a 6-7 days a month to recover the actual cost of maintenance for the month," adds the investment banker. This helps cover the maintenance costs of the property. The ability to balance personal enjoyment with an income-generating asset makes these properties an appealing choice for high-net-worth individuals.Additionally, there is a significant advantage when selling agricultural land. "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," the banker notes.While the middle class in India often spends decades saving for the down payment on a 2BHK flat, the wealthy are using their financial resources and expert advisors to generate and amass more wealth.