How to Calculate Tax on Rental Income

How to Calculate Tax on Rental Income

Situation: An individual owns two houses. One is self-occupied and the second is given on rent. He receives a rent of Rs. 8000 per month on house.
Rental Income
If an individual owns only one residential property, it is considered as self occupied. The individual will not have any taxable income on this house. However, for the second house, the person will have a taxable income, whether or not the house is let-out. If the second house is vacant and is not earning any rent, a nominal/deemed rent is to be considered as income for tax liability. This deemed rent is calculated based on a number of factors such as cost of apartment, location, amenities, prevailing rental value in that area etc. This should the `usual reasonable customary rental value` prevailing in that area.
Tax on rental income
From the total annual income from the rented property, up to 30 percent can be deducted towards maintenance of the rented place and for payment of property tax. The net rental income is added to the taxable income. The actual tax liability is then calculated based on the tax slabs.
What if there is a home loan?
If the person has taken a home loan to buy this second home, then there are substantial benefits under Section 24. The entire interest portion of the EMI paid is deductible from the taxable income. Unlike in case of self-occupied property, there is no cap of Rs 1.5 lakhs for this deduction if it is rented out. The breakup of EMI into the principal and interest and be obtained from the bank from which the loan is taken. If the property is vacant, the annual value of this vacant property can be taken as zero. Rental income is taxable under the head `Income from House Property`.


Author: Editor

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