In India, home is just not home, it is a long-term investment for generations. Everyone regardless of income wants to have at least one home as nobody wants to pay rent for years. Home loans and EMIs are becoming normal day by day. The reality is, EMIs on a house loan consume a significant portion of one's salary. Whereas, those with rental income look for ways to save the tax. In India, property insurance, loans are all taken as a burden by the homeowner. A property owner may be excused from paying some taxes on rental revenue if sufficient preparation is undertaken. Let us investigate the taxation of rental revenue in India. The government has provided several tax incentives for residential property under Section 24 of the Income Tax Act.
Save Tax From Rental Income
In India, there are provisions for making exceptional exclusions and deductions from the amount paid as rental income tax. Rental income is taxed in India under the heading 'Income from House Property.' Anyone who receives rent from a residential property, a business in a building, or rent from a manufacturing facility is subject to taxation.
Claim A Deduction In The Amount Of Rent
The Gross Annual Value (GAV) is only recognized for income tax purposes on rent received, which means that if the rent is not paid to the owner, the owner can claim a deduction in the amount of that rent. In addition, under specific circumstances, if a premise is rented for fewer than 14 days, the owner may deduct the cost from the property's GAV. Any loss of rent on account of vacancy or unrealized rent must be adjusted from the actual rent receivable, to arrive at the GAV of the property.
Municipal Taxes Deduction
Municipal taxes are the annual sums paid to the local municipal corporation. Municipal taxes paid are deducted from the GAV to determine the Net Annual Value (NAV). Municipal taxes can only be deducted if they were paid by the owner during that fiscal year. Municipal taxes, such as sewage and property taxes, can be deducted from rental income tax. However, keep in mind that all municipal taxes must be paid by the property owner, not the renter. These payments will reduce your rental income, lowering your tax burden.
30% Standard Deduction
Section 24(a) of the Income Tax Act of 1961 provides for a standard deduction of 30% on the NAV of the property. Other costs, such as painting and repairs, cannot be claimed as tax deductions in excess of the 30% maximum under this provision.
If the owner or his family stays in the house property, the owner or his family can claim a deduction of up to Rs 2 lakh on their home loan interest under section 24(b). When the house is empty, the same technique is used. If you rented out the property, you can deduct the whole home loan interest. This deduction is also available on a self-occupied property.
However, if any of the three conditions is not met, your interest deduction is restricted to Rs. 30,000 instead of Rs. 2 lakhs.
These requirements are as follows:
- If a loan is borrowed before 01-04-1999 for the purpose of purchase or construction of a house property;
- If a loan is borrowed on or after 01-04-1999 for the purpose of reconstruction, repairs, or renewals of a house property;
- If a loan is borrowed on or after 01-04-1999 but construction of house property is not completed within five years from the end of the previous year in which capital was borrowed.