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How to Avoid / Reduce / Save Tax on Rental Income in India?  



I have recently bought a house which I have given on rent but I am not much aware of Income Tax. Can you tell me how tax on rental income from house property can be reduced or avoided when declaring during submission. Also can you let me know how to calculate "income from house property" for income tax purposes. Thanks in advance!

1 Answer

When you ask how to avoid tax on rental income in India? Then let me tell you, you can’t avoid paying your taxes but surely you can minimize or reduce tax on rental income.

Firstly, you can reduce tax on your rental income by way of municipal / corporation taxes and general deductions. Secondly, most important part of tax saving on rental income is by way of home loan. If you have purchased the property on housing loan than you are eligible to certain limit for deduction of interest on borrowed capital amount. Lets us understand this calculation in more detail below:

How to Calculate Income from House Property and Save Tax:

The Income Tax Act of India has a particular head of income, titled 'Income from house property', to calculate tax of rental income by an owner of a property.

Thus, any rental income received from a property that is let out, is taxable under this head. Rental income is taxable under this head in-case of residential property or commercial property or factory building, etc.

The most effective method to figure your income from house property.

Income from house property contains the income created by the owner of the property.

Let’s consider that you have a property and are charging rent of Rs. 20,000 every month. likewise consider that you have paid municipal taxes of Rs. 10,000 for a year, and you have Rs. 50,000 as interest on borrowed capital.

Head of Income from House Property Amounts (in Rs.) 
Total annual rental income value (20,000 x 12)2,40,000
Less: Municipal Taxes 10,000
Net Annual Value (NAV) 2,30,000
Deductions under Section 24: 
1. (2,30,000 - 69,000 [30% Deduction])1,61,000
2. Interest on borrowed capital (if applicable)50,000
Net Income from House Property 1,11,000
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