Most wealthy, retired, and unemployed adults in the country rely on house rents and real estate income for their livelihood.
However, rental income in India is subject to income tax laws. Fortunately, there are ways to reduce the impact of these taxes.
Income tax on rental income from immovable property: If an individual’s rental income is less than Rs. 2.50 lakhs in a financial year (excluding other income), there is no tax on it because it is less than the minimum income tax limit.
Standard deduction on rental income: Real estate owners can reduce their taxable income by taking a standard deduction of 30% on the net property value.
For example, if a person earns an income of Rs. 3.60 lakhs from immovable property and the municipal taxes are Rs.30 thousand, after the standard deduction, the taxable income is Rs. 2,31,000 only.
Tax Benefit of Home Loan: Homeowners can claim tax deductions on interest paid on home loans up to Rs. 2 lakh. If the house is rented, the Rs. 2 lakh limit is not applicable.
Joint assets: If a property is purchased jointly, there are tax benefits on the rental income. Each joint owner can claim tax benefits under certain sections subject to maximum applicable exemption limits.
Owners should keep the tenancy agreement, property documents, etc., handy when planning to claim income tax benefits. These documents can serve as proof if the Income Tax Department asks for rental income details.