Tax on rental income and applicable deductions

In India, government levies tax on rental income through the ‘Income from house property’ section of the Income Tax Act of India. The law considers the rental income obtained as income accrued and hence makes it eligible for taxation irrespective of the residential status. So, any rent you receive by renting out your house or commercial or residential property, it is taxable.

The tax rate applicable for calculating the income tax for the rental income depends on the income slab of the assessee, i.e., under which tax slab he/she is falling.
A property is taxable based on the higher of two assessments:
1. The rent that the owner receives from the property.
2. The amount of rent that the owner expects to earn from the property.
It is pertinent to remember that as per the law only the owner has to give tax for the rent. Also, the gross rent received is not taxable.
Usually, the municipal taxes payable for your property has been deducted from the rental income amount that is ultimately taxable. For maintenance and repair you can get deduction upto 30%. This 30% is deducted irrespective of whether you spend the money on repairs or not.

Deductions eligibility

Besides, you are also eligible for deductions if you have borrowed money for the property. The interest payable on the loan for the property is deducted before your rental income tax has been calculated. Additionally, any repayment of principal amount against housing loan taken for such property is also eligible for deduction under section 80C of the IT Act. However, the maximum deduction allowed under section 80C is 1.5 lakhs only.
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