Who doesn’t want to own a home that provides a consistent rental income? Rental income is a frequent source of income in India. Many (particularly pensioners) rely on rental income as their primary source of income. If you reside in India and make a living by renting out your home, you may be required to pay tax on rental income. Oh, no tax, tax, tax! Good things like rental income, as they say, do not come cheap. What if I told you that you could save tax on rental income through tax planning rather than tax evasion? One can reduce your rental income tax burden by taking advantage of the rental income tax deductions.
What is rental income?
Rental income is money earned by renting out real estate that you own or have access to. You can own property on your own or in cooperation with another person. Renting a home, apartment, room, office space, or immovable property generates rental income. The amount of rent paid by tenants to their landlords is rental income. It comprises the tenant’s costs for the rental space, furnishings, and other expenses. Cleaning shared rooms, hot water, heating, and property upkeep are examples of such services. The rental income varies according to the landlord and the property rented. The amenities supplied, the size of each property, and the fact that certain places are hotter than others all differ. In India, Assetmonk is a well-known real estate marketplace in India. It provides real estate investment possibilities in Bangalore, Chennai, and Hyderabad. Assetmonk also delivers high-quality assets, with higher rental income and IRRs ranging from 14 to 21%.
So now, what are the best rental income properties in India for you?
Let us look at the top rental income properties in India for you. You can enhance your rental income by the following tips that can help you make wise rental investment decisions:
- Co-living housing: The untapped demand for co-living housing in India is enormous among millennials. It provides accommodation to students and migrant working professionals between 18 and 35. They also account for more than 30% of India’s population, so if you’re thinking about where to invest in real estate,investing in co-living homes gives both demand and opportunity.
- Rental housing: The need for rental housing among the country’s low-income groups is also massive. Rental housing is the only choice for daily wage earners and migratory employees from the informal economy. The government estimates reports, between 26 and 37 million households in metropolitan India live in informal housing. As a result, investing in India’s low-cost housing sector yields higher rental income for you.
- Airbnb Rental: Airbnb rental properties can range from a cabin in the countryside to a big 6-bedroom home in the metropolis. This kind of house has gained in popularity in recent years. An advantage is that you may charge a higher rent per night. If you have a hot property booked for most of the month, you may make considerably more money than if you only have one tenant.
But, is there tax on rental income?
But, oops, your best rental income properties attract tax! There is a tax on rental income. Rental income is considered any other income in India and is subject to taxation. So, if you are a landlord in India having and renting property, your rental income will get taxed, and you must pay tax on rental income. Furthermore, if the amount received as rental income exceeds Rs. 2,50,000 per year, the property owner or landlord must pay rental income tax. But, what is the rental income tax rate? In India, 30% of your rental income gets taxed under the head income from housing property as a standard deduction. For this standard deduction rate on income tax on rental income in India to apply, the applicant must be the legal owner of a property.
What about GST on rental income? GST is levied on rental income. GST on rental income from commercial property gets taxed at 18%. When the rental income from commercial leasing exceeds Rs.20 lakhs, GST will get levied. Any other leasing or renting out of the immovable property for commercial purposes would be subject to 18% GST since it would be considered a provision of service. It entails leasing commercial and residential property wholly or partially for business reasons.
Is there also GST on rental income from a residential property? There is no GST on rental income from residential property. When you rent out a residential home for personal use, you do not pay GST. However, GST must get paid if utilized for any other purpose.
Also, is there TDS on rental income? Section 194I of the Income Tax Act now mandates renters or tenants of house property to deduct tax at a rate of 10% of the rent on any land or building if the total rent paid or expected to get paid during the year exceeds Rs 2.40 lakhs.
But, most importantly, how do you calculate the tax on rental income? You can utilize a rental income tax calculator in India to help you calculate the estimated amount you may have to pay as rental income tax in India.
So, how can you save your tax on rental income?
How to avoid tax on rental income in India, you ask? Tax evasion is a crime. So, how else can you rescue and save yourself from tax on rental income? Through tax planning. And how do you go about that? By claiming rental income tax deductions.
- Municipal Tax: Many people are unaware that they may deduct municipal taxes from their rental income, such as property taxes and sewage taxes. Municipal taxes are frequently referred to as house taxes. As a result, if you have paid any sum, you can claim it as a deduction. These payments reduce your rental income, thus lowering your tax burden. The sole stipulation is the owner pays all local taxes. So, all municipal taxes must get paid by the property owner and not the renter. Municipal taxes are routinely levied on tenants. As a result, the owner cannot deduct the tenant’s payment. Municipal tax deduction decreases your income from residential property, minimizing your tax burden.
- Standard Deduction: As the property owner, you are responsible for numerous expenditures related to the property, such as repairs and upkeep. However, the expenses are not allowable as a deduction from rental revenue. An assessee has the option of taking the standard deduction on rental income of 30% to alleviate this burden.
- Co-ownership of property: Co-ownership of property is another effective rental income tax-saving strategy. You can save on rental income taxes if you buy a home with a family member you trust, like a spouse. The rental income gets divided in half. Thus, you can avoid tax on the rental income of the other family member. Rental income will get distributed per the share of ownership of the property. As a result, you may be able to save by paying taxes on your spouse’s rental income. Assume that both the husband and wife are working. If the husband and wife have different tax rates, this arrangement gets favorable. Consequently, you can decrease the tax on rental income by utilizing one of the spouse’s lower tax brackets. The amount of ownership of the property determines how rental money gets allocated.
- Maintenance charges: Excluding maintenance expenses from the rent collected is one of the simplest methods to avoid tax. Many add maintenance costs in the rent, which raises the total rent amount and, in turn, raises the tax on the rent revenue. For example, if you charge Rs 30,000 in rent and include Rs 5000 in maintenance expenses, you would pay tax on the whole amount of Rs 30,000. You can save Rs 5000 in tax by deducting such payments from maintenance rates.
So, this is all about Everything You Need To Know About Rental Income Tax Exemptions & Deductions.
Thanks for reading.