Avoid Paying Tax on Rental Income: Tax Saving Tips for Rental Income in India

by Godrej Properties Limited

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Owning a rental property in India is a lucrative investment, but it also comes with tax responsibilities. When earning rental income, understanding innovative tax-saving approaches becomes essential. These strategies encompass allowable deductions on property-related expenses, exemptions under different sections of the Income Tax Act, and leveraging available benefits to optimize your tax liability while maximizing your rental returns. By employing these tactics, individuals can ensure a more efficient and financially advantageous management of their rental income.
 

This article presents valuable insights into how to avoid paying taxes on rental income. 
 

Understanding Rental Income Taxation

Rental income generated from residential and commercial properties comes under the purview of taxation. The property's Gross Annual Value (GAV) gets calculated, considering standard deductions, municipal taxes, and home loan interest. Section 24 of the Income Tax Act of 1961 governs the rental income tax under the head's income from house property.
 

Ways to Save Tax on Rental Income

Landlords can optimize their rental income and navigate tax obligations by implementing these buy-to-let tax avoidance tips.
 

Landlords can employ the following strategies to claim exclusions and deductions on rental income tax:
 

Maintenance Charges:

You can take measures towards not paying tax on rental income by specifying in the rental agreement that maintenance charges are paid directly to the society's association by the tenant rather than increasing the total rent.
 

Municipal Taxes:

Deductible from rental income tax, landlords must ensure timely payment of municipal taxes during the financial year.
 

30% Standard Deduction:

Section 24 provides a 30% tax deduction on the net annual value for maintenance and repairs, excluding municipal taxes.
 

Joint Property Ownership:

Purchasing a property jointly divides rental income, leading to proportionate tax obligations for joint owners.
 

Semi-furnished or Fully Furnished Property:

To save on tax, landlords can request tenants to pay for additional services like DTH, Wi-Fi, etc., separately, lowering the taxable rent.
 

Taxation for Non-Resident Indians (NRIs)

NRIs earning rental income from Indian properties must pay taxes under Section 24 of the Income Tax Act 1961. The tenant is responsible for deducting 31.2% TDS on rent and remitting it to the NRI landlord's bank account.
 

Conclusion:  Strategies for Rental Property Investors

Before renting out a property, understanding India's rental income tax laws is crucial to maximizing tax savings. Complying with these regulations and paying rental income tax on time can lead to various benefits for landlords, including co-ownership advantages and favorable home loan terms. Generally speaking, using a great bookkeeper and a reliable assessment consultant or accountant who can assist you continually is the best approach to saving tax.
 

FAQs

Q: How can landlords reduce rental income tax?

A: Landlords can save on rental income tax by considering strategies such as maintenance charge management, claiming deductions, joint property ownership, and tenant agreements for additional services.
 

Q: How to tax rental income for NRIs?

A: NRIs must pay taxes on rental income under Section 24 of the Income Tax Act, 1961. The tenant is responsible for deducting TDS on rent and remitting it to the NRI landlord's bank account.
 

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