So many people have favored rental income and several others also dream to build their own property to generate rent-based income. But every business has its consequences, in the rental income case, there are major tax implications.
Tax Implications On Rental Income
As per the experts, “the rental income for an individual landlord is taxed as per his/her applicable tax slab rates under the head income from house property. In this article, we explain how income from rent is taxed and how it is calculated.”
“The tax on rental income is computed by applying the marginal slab rate applicable to the taxpayer on the Net Annual value of the property”, asserted Dr. Suresh Surana, from RSM India.
“A taxpayer may claim up to two houses as self-occupied properties (SOP) in a case where the annual value would be considered as NIL and accordingly, no tax would be payable on the said property”, as per Dr. Surana.
A tax property, excluding the two SOPs, will attract taxation according to reasonable factors like Gross Annual value.
Regular Tax Deductions
“An individual landlord is allowed to take a standard deduction of 30% on net asset value (gross rent received ‘less’ property taxes or municipal taxes paid by him) to arrive at net income from house and property”, says Yeeshu Sehgal, from AKM Global.
Taxation Criteria On Rented Property Bought Via Home Loan
As per Dr. Sehgal, “if a residential property is purchased on loan and has been rented thereafter, a landlord can claim a further deduction against the interest paid on the home loan up to Rs 2 lakh against interest paid on a home loan.” so, under Section 80C of the Income Tax Act, the part of the EMI paid for that year is allowed for deductions.
“The maximum amount that can be claimed is up to INR 1.5 Lakh. However, while paying taxes on rental income at the time of filing the income tax return, a landlord should keep documents like rent agreement and property deed handy for the future as he/she can use them as proof if the tax department sends any inquiry related to the rental income,” he added.