Is there a tax on rental income in India?

 

In India, investment in real estate is regarded as one of the most profitable investments and the income from house property is a primary source of income for many households. However, there is a tax on rental income in India. To encourage the customers to continue investing in real estate, the government has allowed several deductions under the Income Tax Act 1961.  Let us find out more about the tax on rental income.

 

Is Income from house property taxable in India?

 

Every owner who has leased his home is considered to be making rental income. And these landlords must pay a certain percentage of their earnings towards tax on rental income.  According to the Income Tax Act of 1961, the rental income from house property is taxable under the head- Income from House and Property. However, if the property owner earns any income from renting out their vacant land, such income will be taxable under - Income from Other Sources. 

 

 

How much Rent Income is Tax-free in India?

 

 

Landlords who have a property with a gross annual value of less than Rs 2.5 lakhs are exempt from paying any tax on their rental income. However, if such income is their primary source of income, then as per the Income Tax Act 1961 guidelines, they are required to pay the tax on rental income. 

 

How to evade paying tax on my rental income?

 

Although it is impossible to avoid paying the tax on rental income, there is actually a way for owners to lessen their tax burden. To save a significant amount towards the tax on rental income, property owners must be aware of the various deductions that are available at the time of filing an income tax return.

• Joint property: The taxpayer can save a considerable amount of money on taxes if the property is purchased jointly with a family member. Then the rental income is proportionally split between both parties, resulting in a reduction in taxable income.

 

• Municipal taxes: The Income Tax Act has allowed property owners to deduct municipal taxes such as sewage tax, property tax, etc while calculating the house rent income tax calculations. However, the deduction is allowed only if the tax is paid by the owner itself and not by the tenant. 

 

• Maintenance charges: Save money on taxes by deducting the maintenance charges from your annual rental income. However, maintenance charges will increase the overall rent and increase the tax burden. As a result, it is better to mention them separately in your rental agreement.

 

• Fully furnished or semi-furnished house: It is recommended that property owners who are renting out a property that is furnished, should charge the cost separately from the tenant as this will reduce the rental income, allowing them to save on taxes.

 

 

Takeaway

Income from house property leads to tax implications. Property owners whose primary source of income comes from rent should be aware of all the tax deductions and options available to them for lowering their rental income taxes. To understand the tax on rental income thoroughly, don't forget to refer to the details mentioned in the article.