Reduce Rental Income Taxes : If you reside in India and make a living by renting out property, you may be required to pay taxes on your rental income. Rental property revenue is taxed under the Indian Income Tax Act. However, there are just a few exclusions available to keep taxable rental income off the taxman’s radar. This article will go through how to determine gross yearly value of a property, how to save tax on rental income, Section 24 for such tax, and other topics.

 

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Rental Income Tax

The income obtained as rent from the building or house is taxed under the heading ‘Income from House Property’ under the Income-tax Act. If you rented out a property and earned rent from it, it is considered rental income and will be evaluated as income from other sources. Furthermore, if you generate money from unoccupied land, it will be taxed as ‘Income from Other Sources.’

 

Which section of the tax code does rental income fall under?

Section 24 of the Income Tax Act requires an owner to pay income tax under the title ‘Income from House Property.’ The rental income from unoccupied land will be taxed under the category of “Income from other sources.”

 

How Does Rental Income Get Taxed?

Rental income is taxed in India under the heading ‘Income from House Property.’ Anyone who receives rent from a residential property, a business in a building, or rent from a manufacturing facility is subject to taxation. The property is taxed based on its gross annual value (GAV), which is calculated after subtracting municipal taxes, the standard deduction, and interest paid on a house loan (if any). You can claim a standard deduction of 30% of the yearly value for costs like as renovations and repairs.

According to the Income Tax Act, rental income is any rent paid in exchange for the authorised property owner renting out a property (a building or adjacent land). The annual rental value obtained by the property owner is used to compute the tax on rental income. In India, property is taxed depending on its yearly value. Property owners can calculate the yearly worth of their property by estimating the annual rental revenue or the estimated amount that it can be rented for.

 

Reduce Rental Income Taxes: Deductions Subject to Conditions

 

There are a few conditional deductions that can be claimed under the following three conditions:

 

• The owner or his family resides on the property. In this situation, a reduction of up to Rs 2 lakh on the house loan might be claimed.
• If a residence is not occupied by someone, the same approach is applied, which means a deduction of up to Rs 2 lakh can be claimed.
• If you rent out your house, you can deduct the whole amount of your mortgage interest.

The amount of home loan interest deduction would be limited to Rs 30,000 if:

• A home loan is obtained prior to April 1, 1999, in order to acquire or develop a residence.
• A home loan is obtained on or after April 1, 1999, for the purpose of rebuilding, remodelling, or enlargement of property.
• If a loan is obtained on or after April 1, 1999, but the property is not finished within 5 years of the loan’s disbursement date, the loan is void.

 

How is Gross Annual Value (GAV) calculated?

The Gross Annual Value (GAV) of a property is calculated as follows:

• Calculate the expected rent from a property.
• Actual rent received Step 3: Determine which amount is bigger, step 1 or step 2.
• Loss sustained as a result of vacancy
• Subtract the amount from step 3 from the amount from step 4, which is the yearly gross value of a property.

 

What Section 24 Deductions Are Available?

Section 24 of the Income Tax Act provides for two exemptions. The two exemptions are as follows:

I Standard deduction: The standard deduction for repairs and maintenance is 30% of the gross value of the property. This figure is arrived at after deducting municipal taxes. If your real spend is more or lower, you can deduct 30% of it. Municipal taxes, on the other hand, can be reduced if paid within a fiscal year.

(ii) Deduction for real interest paid on a house loan: This deduction can be claimed for property that is rented, presumed to be rented, or self-occupied. Interest on money borrowed for construction/acquisition/repair/renovation is entirely tax-deductible on an accrual basis. If net income exceeds net annual value (NAV), it can be used to other income categories or carried forward for up to 8 years to offset taxable income.

 

Reduce Rental Income Taxes: How Much Rent Is Tax-Exempt?

If the Gross Annual Value (GAV) of a property is less than Rs 2.5 lakh, a person does not have to pay tax on rental income. However, if a person’s primary source of income is rent, he or she may be required to pay taxes.

 

How Is Taxable Rental Income Determined?

A tax on rental income is computed after subtracting municipal taxes, normal deductions, and, if applicable, house loan interest.

Let’s look at an example to see how taxable income is computed. Assume an owner earns Rs 30,000 per month in rental revenue and pays Rs 30,000 in municipal tax (which is calculated using Unit Area System of a property). He has also taken out a housing loan, for which he is paying Rs 80 000 in interest. The following is how his taxable income will be calculated:

 

Income from Rented Property	Amount in Rs
Gross Annual Value (Amount collected as rent annually)	3,60,000 (30,000 per month)
Deduct: Municipal Taxes	30,000
Net Annual Value	3,30,000
Deduct: 30% standard deduction	99,000 (30% of 3,30,000)
Home loan interest	80,000
Income from house property	151000

 

In this instance, you must pay tax on your rented home since the GAV of the property is greater than Rs 2,50,000. If you pay Rs 15,000 per month in rent, your GAV is Rs 1,80,000 (15,000*12), and you do not have to pay rental income tax.

 

When property is exempt from taxation

If you get income under the following scenarios, you will not be required to pay tax:

• Receiving farm house rent
• Local government revenue
• Income from a scientific research organisation that has been approved
• Earnings from an educational institution
• Earnings from a trade union
• Rental property for philanthropic purposes
• A political party’s property revenue
• If you use real estate for your own business,
• Self-contained property

 

Reduce Rental Income Taxes: NRI Rental Income Taxation

If you are a Non-Resident Indian (NRI) who earns rental income by renting out a property, you must additionally pay taxes under Section 24. The restrictions and deductions for NRIs are the same as for Indian residents. However, in this instance, the tenant is responsible for paying property taxes. The renter will be require to deduct a 31.2 percent tax deduction at the source (TDS) before making the payment to the NRI account. The TDS form must be filed with the tax authorities. They will also be required to complete Form 15CA and submit it to the Income Tax authorities.

Remember that as under Section 24, NRIs are subject to double taxation. In addition, they must pay taxes in the nation (where he or she resides) for the same property rented in India. To avoid double taxes, we must first determine whether India and the other nation have a Double Taxation Avoidance Agreement (DTAA). If the nations do not have a DTAA, India has the authority to tax NRIs for rental property. However, if DTAA exists, you must determine if India has the authority to tax rental revenue. In most circumstances when the DTAA applies, both nations are permitted to impose tax. However, if you live in Bangladesh, Greece, or the United Arab Emirates (UAE), only the source nation (India in this example) can levy taxes.

 

Reduce Rental Income Taxes: Tax Strategies for Rental Income

You can avoid tax on rental revenue by following the following advice:-

Maintenance fees: One of the simplest methods to reduce tax is to deduct maintenance payments from rent. Some people add maintenance charges in the rent, which raises the total rent amount and, in turn, raises the tax on rent revenue.

For example, if you charge Rs 30,000 in rent and include Rs 5000 in maintenance expenses, you would pay tax on the amount of Rs 30,000. However, by deducting such payments from maintenance rates, you can save Rs 5000 in tax. You simply need to include one sentence in the lease that states, “Tenant can pay maintenance directly to society organisation.”

Joint property: If you buy a property with a family member you trust (husband/wife/parents), you can save on rental income taxes. In this instance, the rental revenue is divided in half. And you can avoid tax on the amount of the rental income that is allocate to the other family member.

 

Reduce Rental Income Taxes

Municipal taxes: Municipal taxes such as sewage tax and property tax can be deducted from rental income tax. However, keep in mind that all municipal taxes must be paid by the property owner, not the renter. These payments diminish your rental revenue and hence your tax burden.

Semi-furnished or completely furnished property: If you are leasing your property with amenities such as Wifi, DTH, and pipeline connection. You can ask the renter to pay such expenses individually and not include them in the rent. This reduces your rental revenue and requires you to pay less tax on it. So, if you generate more rental income than the Income Tax agency has determined, there are ways to avoid tax. Section 24 of the Income Tax Act of India imposes a tax on rental income. Making standard deductions, owning property jointly, and other strategies can help you save tax on rental income.

 

Reduce Rental Income Taxes: In conclusion

If you have rented out a home, you must follow the Rental Income Tax Laws in India. Understanding these regulations might help you save money on rental income taxes. Rental income tax payments made on time qualify landlords for a variety of house financing and co-ownership opportunities. For example, under Section 24(B) of the IT Act, if you rent a residential property with an active home loan. You can claim the tax on rental income deduction against the total amount of home loan interest paid in the year. On the other hand. If you own the rented property jointly with someone, you may be able to lower your tax burden on rental revenue.

 

 

 

 

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