Tax Saving on Rental Income

December 26, 2022

Introduction

Rent from any property such as houses, shops, offices, etc., received by the owner is taxable as income from House Property. However, while computing the rental income, individuals can claim certain deductions to minimize tax liability.

Savings

One of the main deductions allowed is Municipal Taxes. It is allowed in the year of payment, if the taxes for 2020 and 2021 are paid in February 2022, the entire amount can be claimed for deduction in the FY22.

Another savings is a standard deduction of 30% on net rental income (rent minus municipal taxes) that can be claimed towards the maintenance of the property, irrespective of whether you have actually incurred any expense or not. However one can reduce municipal taxes amount if paid in that financial year.

Finally, interest on loans taken for the purchase, construction, repair, renewal, or reconstruction of the property is allowed as a deduction. The Act also provides for the deduction of interest incurred during the construction period, in five equal annual installments, commencing from the year in which the house property is acquired or constructed.

Tips to save tax on rental income

You can save tax on rental income by following the given tips:

  • Maintenance charges: One of the easiest ways to save tax is to exclude maintenance charges from rent received. Some people include maintenance charges in rent, which increases the whole rent amount; in a way grows tax on rental income.
  • Joint property: If you decide to purchase a property jointly with a family member, you can save tax on rental income. In such a case, the rental income is divided into two, and you can save tax on rental income proportioned to the other family member.
  • Semi-furnished or fully furnished property: If you are letting your property with services like Wifi connection, DTH connection, Pipeline connection, etc., you can ask the tenant to pay such charges separately and not include them in the rent. This will lower the rental income and you will have to lower tax on it.

When a property is not taxable?

You will not have to pay tax if you are receiving income from the following scenario:

  • Receiving rent from Farm House
  • Income from Local authority
  • Income from an approved scientific research association
  • Income from an educational institute
  • Property rented for charitable purposes
  • Property income of a political property
  • If you use the property for your own business
  • Self-occupied property



Note: Above details are meant for generalized situations and shall not be used as a legal basis for any particular situation readers may have. We do provide tax consultations for specific scenarios and can be reached through our contact us form.



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