Rental Income: Tax benefits available for landlords

Rental income from real estate investments can make a big difference to your portfolio returns. So, as a landlord, you must be aware of the tax benefits that maximise your returns.

If you have bought a property jointly, it can help you bring down your tax liability on the rental income.

Rental income comes within the purview of income tax laws in India. If you own a property and have rented it to someone, you need to understand how to minimise your tax burden. Rental income from real estate investments can make a big difference to your portfolio returns. So, as a landlord, you must be aware of the tax benefits that maximise your returns.

Before looking at different tax benefits available for landlords, let’s check how rental income is taxed in India.

Tax Liability On Rental Income

Property rental income is taxed as per the individual’s I-T slab rate. For example, if an individual has no other income and earns only rental income below Rs 2.5 lakh in a financial year, no tax will be charged as the income is below the taxable limit. What if the rental income increases by 20% in the next financial year? Will it then be taxed? It may still not get taxed due to certain tax benefits available on the rental income. Let’s check out the tax benefits that can help landlords reduce their tax liabilities.

Standard Deduction Available On The Rental Income

The landlord can reduce their taxable income with the help of standard deduction. You can apply a 30% standard deduction on net asset value (gross rent received ‘less’ property taxes paid by the landlord) to arrive at net income from house and property. For example, the rental income of an individual is Rs 3.2 lakh, and the municipal taxes paid by him is Rs 20,000. The net asset value would be Rs 3 lakh (Rs 320,000 ‘less’ Rs 20,000), and the 30% standard deduction on NAV will be Rs 90,000. Hence, net income from house and property will be Rs 300,000 ‘less’ Rs 90,000, i.e., Rs 210,000, below taxable income.

NRIs can also claim the standard deduction on income from house and property. 

Tax Benefit Against Home Loan

If you bought a residential property on a home loan and rented it, you can claim the tax deduction against the interest paid on the home loan. Under Section 24(b) of the I-T Act, a landlord can claim a tax deduction up to Rs 2 lakh against interest paid on a home loan. If the home loan borrower also qualifies for tax benefit under Section 80EEA, he can claim a benefit of up to Rs 1.5 lakh, which exceeds the deduction benefit available in Section 24. So, if you earn rental income from a property bought on a home loan, you can get a deduction up to Rs 3.5 lakh against the interest paid.

Tax Benefit For Property Co-owners

If you have bought a property jointly, it can help you bring down your tax liability on the rental income. Under co-ownership, where the share in the property is clearly defined in the conveyance deed, all co-owners can claim the tax benefit as per their ownership ratio. So each co-owner of the property can claim the tax benefit under Sections 24 and 80EEA subject to maximum applicable deduction limits. The total combined deduction claimed by the co-owners should not exceed the interest incurred on the home loan during that financial year. 

When planning to claim the tax benefits as a landlord, you should keep documents like rent agreement and property deed handy; you may need them as proof when the IT department sends a query related to the rental income.

(The author is CEO, Bankbazaar)

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