A Guide to Taxation and Home Renting


If you are a house owner who has rented out his property or is living in the property. This blog post should help you understand the different nuances and applicability of taxes on your property. So here is a guide to taxation and home renting

Whenever you earn an income, tax is applicable. In relation to property, there are two types of incomes that attract tax – rental income and capital gains. Rental income from **flats for rent** is determined based on the rent received after deductions like civic taxes paid in the year, a typical deduction of 30% from the net annual value after deducting the property’s municipal taxes and the interest paid to banks on the lent capital to buy the property.

The basis for calculating income from house property is the rental value of the property. This is the characteristic capacity of the property to earn income. Property income is maybe the only income that charges to tax on a notional basis. This charge is not based on the receipt of any income per se, but is on the inherent potential of the residential property to generate income. The nature of tax-ability on the **rental income** will depend on how you rent out the property. If the property lets out for residential housing, it subjects to tax as ‘income from a residential property’.

Income Tax

The first property one buys exempts from income tax, but only if it does not let out on rent. A notional rent value on the market rental value accepts as taxable income from additional property onwards, even if it’s kept under lock and key. When a property not lets out, only that property excuses from tax.

Regardless of the head, under which the income recognizes by the owner, tax contingent on the title of the landlord’s slab rate will be 10%, 20% or 30% that excludes cess and service charge. For the corporate guest house, which lets out to employees of some corporate group, income shall be under the head income from business.
There are two types of tax deductions available on income from property apart from the actual taxes. The first is standard deduction of 30%. The second deduction is more than the 30% standard deduction. However, properties are taxable on either actual rent or speculative rent. the entire amount of interest paid without any limit is deductible. Interest deduction on a property can be only after taking possession of it.

As with the other sources of income that needs to be accounted for while filing tax returns. The rental income accumulated from a rented property has tax implications. The same is taxable as per the Indian Income-Tax law.