Income tax on rental income

As per the provisions of the Income Tax Act, 1961, the rent received by the owner is taxable under the head ‘Income from House Property’. In most cases, rent from let-out property is taken into consideration, but if the individual has multiple self-occupied properties, deemed income can also come under the tax scanner.

When is Income from House Property added to the individual’s income?

Income from House Property is added if the following conditions are satisfied –

• You must be the owner of the property.
• The property must comprise of land and/ or building.
• The property must not be used for business or professional purposes.

How do we calculate the Gross Annual Value of a property?

In case of a rented property, the GAV or Gross Annual Value is the higher of Expected Rent and the Actual Rent received by the owner. Expected Rent is the higher of Municipal Value and Fair Rent, but not exceeding Standard Rent in any case.

For example, Mr X has let-out a property on rent. He is earning Rs 2.40 lakh annually as rental income from it. The Municipal Value of the same is Rs 2.60 lakh, but the Fair Rent is Rs 2.20 lakh. The Property has a Standard Rent of Rs 2.50 lakh.

He paid Rs 30,000 as municipal taxes for it in the previous year and spent Rs 12,000 on general repairs. He has funded the purchase by a home loan, the interest of which was Rs 1.20 lakh for the year. Calculate the Income from House Property for Mr X in the previous year.

Note: The tax department allows a flat standard deduction of 30 percent of Net Annual Value to the owner. The main intention for the Government to provide this deduction was to subsume all miscellaneous expenses incurred on general repairs and otherwise.