How to reduce the tax on property rental income?
The Union Budget presented by the new finance mister Mr. Arun Jaitley had a special focus on the real estate and infrastructure sector. While announcing various measures to increases the influx of foreign direct investment in the sector along with announcement of new cities and towns, the finance minister also made home loans more profitable in terms of tax saving.
There are a lot of tax sops available for the average Indian citizen which can help him or her offset any tax liability against income from property. A large number of people remain unaware of their rights or legible ways to reduce their overall tax liability. Let us take a look at some ways to reduce or get tax benefits on rent received from a residential or commercial property.
Tax benefits on rental income
The repayment made towards principal amount of the home loan for any residential property can be claimed as tax deduction under Section 80C of the income tax Act. The maximum permissible limit to avail tax deduction for repayment of principal amount of a home loan is Rs. 1.5 Lakhs. It is imperative to know that for loans taken for home repairs, the landlord can only claim deduction on the interest paid and not the principal amount. If you have two housing loans on two different properties, you can claim tax deduction under Section 80C of the income tax Act for both loans but, only up to Rs. 1.5 Lakhs.
Tax on rental income
Rent received from any commercial or residential building must be calculated and listed under the income from house property category. The rent is subject to income tax but can be offset if allowed or permissible deductions are higher than the rent received. Deduction against maintenance is one of the fundamental parameters that allow landlords a 30% tax deduction on rent received. They can offset the same against rent received irrespective of whether they have spent the amount of maintenance or not. Similarly interest paid on housing loan for a rented property can also be offset from the rental income to reduce tax liabilities.
The deemed rent is the rent value of your house that likely to get if you rent it out. The deemed rental income is calculated on the property, if you have more than one property irrespective of whether the property is let out or not. You can reduce this tax by declaring high rental value property as self occupied and lesser value as the deemed rental income.
Loss on house property can be set off against the income
Loss from house property can be offset against any other income source including salary or business or interest earned on fixed deposits or other investments. The income tax allows the tax payer to carry forward the set off to the next financial year if the fill amount of loss is not been able to offset for the current assessment year. It is however imperative to note that there is a limit as to how many years the set off can be carried forward. Any loss from house property loss to be offset against other income must be claimed within eight assessment years.
Any payments made by the house owner towards government dues as municipal taxes or interests on home loan are liable for deductions from property income. In case the property is self occupied the maximum limit of tax deductible is fixed at Rs. 2 Lakhs while there is no such ceiling for non self occupied properties. The deductions can be offset against any other income sources including income from profession or capital gains etc.
Every property owner has the right to deduct an amount equal to 30% of the annual value of the property as maintenance charges. The deduction can be availed even if the house or property owner has no spent the amount for any maintenance work. The amount is deducted from the annual rent received minus any payments made for municipal taxes. If there is more than one owner for any property, the education can be availed by both co-owners separately.
