Ways to save tax on Rental income | Fusion - WeRIndia

Ways to save tax on Rental income

Ways to save tax on Rental income

Rental income is shown under the income from house property. It is taxable as per the Income Tax Act. If you earn an income from the vacant land, then the income is shown under the income from other sources. It is also taxable.

The rent earned from house property is taxable on its gross annual value (GAV). Municipal taxes paid on the property are deducted to obtain net annual value (NAV).

A standard deduction of 30% is allowed from the NAV. If the house property is purchased on a home loan, then the interest paid on the property is allowed for the tax deduction. The entire amount paid towards home loan interest is allowed as a deduction.

If the house property is self-occupied, then the maximum deduction allowed is ₹2 lakhs on home loan interest. The same amount is applicable to a vacant property. But, the full amount paid towards home loan interest is allowed for deduction if the property is let out.


See the following example:

Particulars                                                          Amount in ₹

Gross Annual Value of a property                             7,00,000

Less: Municipal taxes                                                   50,000

Net Annual Value                                                       6,50,000

Less: Standard deduction (30%)                               1,95,000

Home loan interest                                                    5,00,000

Income (loss) from the house property                      (45,000)

Here there is a loss from the house property. So it can be deducted from the total taxable income. The maximum loss allowed per year is ₹2 lakhs. If it is more than that, it is carried forward to the next year. The loss that arises from the house property can be carried forward for the next eight assessment years.

Suppose in the above case, the home loan interest is ₹4,00,000. Then, the income from the house property is ₹55,000. It is added to the total taxable income and taxed as per the income slabs.

Income from house property is not taxable in the following cases:

  • Rent received from a farmhouse
  • Income received from a local authority, trade union, approved scientific research association or educational institute.
  • If the property is given for charity purposes or is self-occupied, then it is not taxable.
  • If you use your property for your own business, then also, it is not taxable.
  • Also, the property income of a political party is not taxable.

Image from Maxpixel (Free for commercial use / CC0 Public Domain)


Image Reference: https://www.maxpixel.net/House-For-Sale-House-For-Rent-Build-A-House-Property-4503738

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