One excellent source of consistent income is rent from a property. Rent is taxable, though, much as your pay or company profits. The good news is that you may lower your tax load by using many rental income tax deductions. Let’s figure out how you might use them.
Rental income refers to: Renting out your house, business, or any other property generates rental income. It entails:
- Rent paid each month by renters
- Advance rent obtained
- Security deposit—should it not be refundable?
After allowing certain rental income tax deductions, the Income Tax Department treats this as “income from house property” and taxes it.
Rental income tax is paid how? Here is a basic, sequential guide:
- Calculate Gross Annual Value (GAV); typically, this is the annual total rent received.
- Subtract municipal taxes, paid by you.
- We then refer to this as Net Annual Value (NAV).
- From NAV, you can claim interest on a home loan as well as standard deduction.
Let us now examine these deductions closely.
Top Rental Income Tax Reductions
- One standard deduction—30% of Net Annual Value You automatically get a 30% deduction on NAV to cover repairs, maintenance, etc.
Not necessary any documentation or bills.
For instance, your deduction is ₹90,000 if your NAV is ₹3,00,000. - Section 24 Home Loan Interest Should you have a loan taken out to purchase or develop the property, the interest paid is deductible.
Should the property be self-occupied, you are entitled to claim up to ₹2 lakh annually.
Should the property be rented, there is no upper limit; the loss from house property is only ₹2 lakh annually overall. - Taxes Paid Municipally Only if you paid it—not the tenant—you can write off municipal or property taxes paid to the local government.
- Loss of Vacancy Should the property remain empty for some months, you only pay tax on the actual rent received—not expected rent.
Objectives You Cannot Deduct
- Main balance on a home loan
- Paying brokerage to locate a tenant
- The cost of running the house
- Water and electricity bills paid by the renter
Only the particular rental income tax deductions specified by legislation are permitted.
Advice on Maximizing Tax Reductions
- Save home loan interest notes and rent receipts.
- Pay municipal taxes before March 31 to be claimed in that year.
- Tell your PAN straight forwardly about rental income.
- Usually ITR-1 or ITR-2 depending on income, file your ITR under the correct section.
Last Notes One excellent source of consistent income is renting your house. And rental income tax deductions help you avoid having to pay taxes on a large portion of it. You can keep tax-efficient while enjoying your rental income with a little knowledge and preparation.
