How can I get tax benefits on the Rent received from a residential property while filling my income tax return?
Rent received from any commercial or residential building must be calculated and listed under the income from house property category, which gets added to your monthly / annual income. Using the deduction against maintenance rule, you can avail a 30% tax deduction on rent received irrespective of whether you 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. Further, any payments made by you as a house owner towards government dues such as municipal taxes or interests on home loan are liable for deductions from property income.
You will have to pay tax on the rental income. The annual value of house properties other than those which are used for business or professional purposes is accountable as income from house property and needs to be calculated in order to figure out the tax for the same. The annual value of a property is the amount of money that the property can ideally or actually realise in any given financial year.
As per the Income Tax Act, the Annual Value of the property is the inherent capacity of the property to earn income and is taxed to the owner. As per the same, the taxable income could be either the Gross Annual Value (GAV), Net Annual Value (NAV) or Annual Value.
- Gross Annual Value of the property will be the highest of
o Rent received or receivable
o Fair Market Value
o Municipal valuation
- Net Annual Value will be the Gross Annual Value less the municipal taxes paid by the owner
- Annual Value is Net Annual Value less the Deductions as per section 24
In effect, if a person has the ownership of a house property and has been paying the municipal taxes for the property as well as has the property let out, point 3, or the Annual Value will be amount that is finally taxable.
However, there are deductions allowed. The deductions applicable for Income from House Property can be considered as the following as per Section 24 –
- Deduction under Section 24(a) – 30% of Net Annual Value
- Deduction under Section 24(b) - interest on capital borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property.
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