All you need to know about the tax treatment on rental income

Rental income from property is a relatively common source of income in India and it falls within the brackets of taxable income. The rental income is considered taxable under the category ‘Income from House Property’. As property owners in India, it is essential to understand how to optimise tax benefits and claim deductions to significantly lower your tax liability.

The rental income taxation is calculated based on the annual value of the property, which is higher than the actual rent received or the expected rent. Notably, there is no taxable income for self-occupied properties, for no rent is earned on it.

If the property is rented out, the net rental income after deductions is added to your overall tax liability. Certain deductions are permitted while calculating taxable rental income. These include a 30% standard deduction from the net annual value, interest on house loans (under Section 24(b)), and municipal taxes incurred during the financial year. Any other income, such as advance rent or arrears of rent, must also be reported in the relevant year.

Tax benefits available for rental income:

– A flat 30% deduction is permitted on the property’s net annual value. This includes expenses such as repairs and maintenance, regardless of actual expenditure.

– If you have a home loan, you can claim your interest payments as a deduction under Section 24(b). There is no upper limit on the interest deduction for rented properties.

– Property and municipal taxes paid during the year are deducted from your gross rental revenue if they are paid by you and not the tenant.

– If the property was unoccupied for part of the year and you were unable to rent it out, you can deduct the vacancy loss.

– You can also claim a deduction for interest paid on a house loan during the construction phase, divided into five equal instalments beginning with the year the property is completed.