Having a property and earning rent from it is a great secondary income source. However, as per the Indian Income Tax Act, rental income is also taxable, just like you have to pay tax on your salary, business revenue, and earnings from other sources of income. Read the blog further to know about all the taxation rules applicable for the financial year 2024-25 (assessment year 2025-26). Learn about all the applicable deductions and exemptions and how to calculate taxable rental income from house property.<\/p>\r\n
Table of Contents<\/strong><\/p>\r\n The income tax on rental income is calculated based on the annual rental earnings from your property. This income is added to your total taxable income and taxed according to your income tax slab rate. The rental income tax rate depends on your total income and can range from 5% to 30%.<\/p>\r\n Before we delve into the computation of income from house property, let us first understand the fundamentals of house property tax:<\/p>\r\n A self-occupied property is one where the owner resides and doesn\u2019t rent it out. The Gross Annual Value (GAV) of such a property is assumed to be zero, and there is no taxable income from it. However, the owner is eligible for a deduction of up to \u20b9 2,00,000 for interest on a home loan<\/a> under Section 24(b).<\/p>\r\n A let-out property is one that the owner has rented out to tenants. The income from house property is taxable, and the tax is calculated as per the Gross Annual Value (GAV) of the property.<\/p>\r\n Notably, a house property, in addition to 2 self-occupied properties, is deemed as a rent-out property, regardless of whether it\u2019s rented out. Therefore, the owner has to pay tax on it. Suggested read: Security Deposits in Rent Agreement<\/a><\/strong><\/p>\r\n Owners should remember that only income from habitable property is taxed under Sections 22 and 24 of the Income Tax Act. Income generated from renting out vacant land is taxed under the category \u2018Income from Other Sources.<\/p>\r\n Also read our latest web story on How to Save Tax on Rental Income: https:\/\/www.basichomeloan.com\/blog\/web-stories\/save-tax-on-rental-income<\/p>\r\n The Gross Annual Value (GAV) of the property is required for the computation of income from house property. The GAV of the property is the highest of the following:<\/p>\r\n Suggested read: 11-Month Lease Agreement<\/a><\/strong><\/p>\r\n To compute taxable income from house property, the GAV of the property is required. Certain deductions and exemptions are allowed on the rental income from house property by the government, after which the final taxable income is calculated. The following are the steps to calculate the income from house property for income tax purposes:<\/p>\r\n As discussed above, the GAV of a house property is the higher of the following:<\/p>\r\n The GAV of the self-occupied property is taken as zero.<\/p>\r\n The municipal taxes paid to the local authority during the year are deducted from the GAV of the property to arrive at the Net Annual Value (NAV).<\/p>\r\n As per the Indian Income Tax Act, a standard deduction of 30% and interest on home loans are allowed on the income from house property.<\/p>\r\n After subtracting the deductions and exemptions discussed above, the remaining amount is deemed to be the net income from the house property, which is subject to the applicable income tax slab rates.<\/p>\r\n Please note that all the deductions discussed above can only be claimed under the old tax regime only. Also, that the property owners can only get deductions of up to \u20b9200,000 on home loan interest<\/a> for self-occupied properties. However, there is no limit on the deduction for let-out properties.<\/p>\r\n\r\n
Understanding Income Tax on Rental Income<\/span><\/strong><\/h2>\r\n
Basics of House Property Tax<\/span><\/strong><\/h2>\r\n
1. Self-Occupied Property<\/strong><\/h3>\r\n
2. Let Out House Property<\/strong><\/h3>\r\n
3. More Than Two or Inherited Property<\/strong><\/h3>\r\n
In simple words, if you own more than two house properties, only two properties can be self-occupied, and the third or more properties are treated as a \u2018deemed let-out\u2019 property for tax purposes.
Similarly, inherited property (one that is bequeathed from parents or anyone from the family) can be self-occupied and let out as discussed above. Accordingly, a tax on rental income will be levied.<\/p>\r\nTypes of Properties Not Covered Under the Rental Income Computation<\/span><\/strong><\/h2>\r\n
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How to Calculate the Gross Annual Value of a Let-out Property?<\/span><\/strong><\/h2>\r\n
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How to Compute Taxable Income from House Property?<\/span><\/strong><\/h2>\r\n
Step 1: Compute Gross Annual Value (GAV)<\/strong><\/h3>\r\n
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Step 2: Deduct Municipal Taxes Paid<\/strong><\/h3>\r\n
Step 3: Deduct Standard Deductions & Interest Paid on Home Loan<\/strong><\/h3>\r\n
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Step 4: Net Taxable Income<\/strong><\/h3>\r\n