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Rental Income from House Property-All You Should Know

You don’t always buy a house to live in; many a time, it is an investment. Rental income from property is an alternate means or sometimes primary means of income for individuals. This blog will answer all your questions on rental income, taxation on rent in India, and certain strategies to maximize rental income from house property. 

Let’s begin with pointers to maximize your rental property income.

How to maximize rental income?

Optimizing rental income from house property would fetch more returns on your investment.

  • Location matters

A house at any location that has good connectivity and accessibility to other prominent localities gets the best rentals. That would be a place that is developed or developing, has good infrastructure, and availability of basic amenities like banks, hospitals, schools, grocery shops, etc. Having employment hubs that are close by is a bonus. 

  • Well-maintained property

Any tenant would go for a property that is in good condition. Be it repairing fixtures or making some cosmetic improvements etc., maintain your house. 

  • Competitive rent 

Check for rentals in the area. If you charge too high, you won’t find tenants.

Now let us understand the taxation in India on rental income from house property.

Tax on Rental Income 

So, how much rental income is tax-free in India? Rental income is mostly considered a business income under the IPC. If a house property is leased out or rented, the amount paid by the tenant to the landlord is termed “rental income” according to the existing tax laws in India. This also includes any amount that has been paid in advance as the security deposit. 

According to the IPC, the rental income amount is considerable, and it should be under the brackets of Section 24 of the Income Tax Act. 

Section 24 of the Income Tax Act

  • The government considers residential property and commercial property the same. 
  • Even if you rent out a parking lot of your home or office (considered a house property), it is taxable. 
  • Rental income from house property is treated as any other source of income in India and is taxable accordingly. If the total income exceeds Rs. 2,50,000 annually, the owner is liable to pay tax on income. If your house property rent is the only means of income, then the same rules apply.
  • In India, 30% of your rental income is taxable under the head income from house property as a standard deduction. The applicant must be the legal owner of a property for this standard deduction rate.
  • However, the owner of the property is allowed to make considerations for any cost incurred towards the property for maintenance.
  • The security deposit amount can also be deducted. If the security deposit is kept against some damage, it can be shown in the income statement, and later, the owner can ask for a deduction on it.
  • Avail deduction on home loan if applicable
  • Joint owners get a deduction of up to 50% of annual value. 

Tax on Vacant Homes

A vacant home is considered a self-occupied property as per the Income Tax regulations. Before the financial year 2019-20, if a taxpayer-owned more than one house, only one was considered self-occupied; the rest were treated as rented. From the FY 2019-20 and onwards, an individual can own 2 self-occupied homes and pay tax on the remaining. 

How May You Save Tax on Rental Income?

The following tips will help you save tax on rental income from house property:

  • Maintenance charges may be excluded from your taxable income. 
  • Any other taxes you paid to the Govt. may be excluded from the income: municipal taxes such as sewage tax and property tax, etc. 

Rental income has been an alternative source of income for many households in India. This handy guide would help you maximize your rental income and give a better understanding of how taxes are levied on rental income from house property.

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