Mr. A receives a rental income of Rs 7,000 per month. His taxable income from salary and other sources is Rs 10 lakhs per annum. How should he calculate his income tax liability on rental income? Is he eligible for any additional tax sops?

Many homeowners invested in a second house a few years ago, when the rates were very low. A second house is often let-out by homeowners as it starts generating rental income. If an individual owns only one self-occupied residential property, it is termed as selfoccupied.

There will be no taxable income with respect to such property that has not been let-out. What happens to his other properties? Even if the property is not earning any rent, as it is vacant, a nominal/deemed rent is to be considered as income for tax liability. This deemed rent is based on several factors like cost of apartment, location, amenities , prevailing rental value in that area etc, and should be the ‘usual reasonable customary rental value’ prevailing in that area.

Annual value is the capacity of the property to earn income, which may be more than the actual rent received by the owner of the property.

Tax on rental income

The rental income is added to the taxable income and tax liability is based on the tax slabs. Up to 30 percent of rental income can be deducted towards maintenance of the rented place and for payment of property tax etc.

If a loan is availed to buy this rented property, the entire interest from EMIs paid is deductible under Section 24. As in the case of self-occupied property, there is no cap of Rs 1.5 lakhs for this deduction if it is rented out. If the property is vacant because the assessee is employed at a place other than the one where this vacant property is situated, the annual value of this vacant property can be taken as zero.

Rental income is taxable under the head ‘Income from House Property’ . Mr. A must club the net income under this head to his other income and respective tax rates must be applied. Mr. A can also apply the standard deduction of 30 percent permitted for repairs and other expenses.

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Category : Income Tax (28832)
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  1. JANAKIRAMAN says:

    We both are govt.employees. My wife has been allotted Govt.Quarters and the rent for that Qrs. is being recovered from her monthly.salary. My question is that  I have not paid any rent. In this situation my HRA is accounted for taxable income. Then how I calculate my HRA relief?

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