How to Calculate Income Tax on Let Out Property in India?

A let-out property is a property that is rented out to tenants. The owner of the property receives rent from the tenants, which is considered income under the Indian Income Tax Act.

Income tax implications of let-out property

The income from a let-out property is taxed under the head of “Income from House Property”. The income is first calculated by deducting the following expenses from the gross rent received:

  • Municipal taxes paid on the property
  • Interest on loan taken for purchase, construction, repair or renovation of the property

After deducting these expenses, the remaining amount is considered the net annual value (NAV) of the property. The NAV is then taxed at the applicable income tax rate.

Deductions allowed for let-out property

In addition to the expenses mentioned above, the following deductions are also allowed for let-out property:

  • Standard deduction of 30% of NAV
  • Actual expenses incurred on repairs and maintenance of the property
  • Vacancy allowance of 15% of NAV, if the property is vacant for more than 30 days during the year

Tax benefits of let-out property

The following are some of the tax benefits of let-out property:

  • Deduction of interest on loan taken for purchase, construction, repair or renovation of the property
  • Standard deduction of 30% of NAV
  • Actual expenses incurred on repairs and maintenance of the property
  • Vacancy allowance of 15% of NAV, if the property is vacant for more than 30 days during the year

How to calculate income tax on let-out property

To calculate income tax on let-out property, follow these steps:

  1. Calculate the gross rent received from the property.
  2. Deduct municipal taxes paid on the property and interest on loan taken for purchase, construction, repair or renovation of the property to arrive at the net annual value (NAV).
  3. Apply a standard deduction of 30% of NAV.
  4. Deduct actual expenses incurred on repairs and maintenance of the property.
  5. If the property is vacant for more than 30 days during the year, claim a vacancy allowance of 15% of NAV.
  6. The remaining amount is your taxable income from let-out property.
  7. Pay income tax on the taxable income at the applicable income tax rate.

Conclusion

Let-out property can be a good source of income, but it is important to be aware of the income tax implications. By claiming all the allowable deductions, you can reduce your taxable income and save tax.

Additional tips

  • Keep a good record of all your expenses related to the let-out property, such as municipal taxes paid, interest on loan, repair and maintenance expenses, etc.
  • If you have any doubts about the income tax implications of let-out property, consult a tax expert.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

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