Key things renters and landlords should note

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If you’re considering investing in real estate, there are some things you need to know. One of them is taxation. Income from the rental of property is taxable under Indian law. The owner will be taxed under the Income Tax Act 1961 on any rental income. If the property is a house or a building, it will be taxed as house and property income. If the landlord receives rent from vacant land or such property, he will raise income from other sources. However, owners can benefit from certain deductions. Rental income tax is calculated on the gross annual value (GAV) of the property after subtracting municipal taxes, mortgage interest (if applicable) and standard deductions.

Some things landlords should know about rental income:

  • If the GAV of the property is less than Rs 2.5 lakh, the owner will not have to pay any tax. But if rental income is the main source of income, the owner will have to pay taxes.
  • A fixed deduction of 30% is applicable on the net annual value of the property. Net annual value means GAV minus municipal taxes.
  • If the building/apartment is co-owned, the co-owners would be liable for rental tax in proportion to their ownership shares.
  • A deduction may also be claimed for interest paid on a home loan under Section 24(b) of the Income Tax Act.

Some things tenants should know about rental income:

  • You can get a Housing Allowance Deduction (HRA) only if it is part of your salary. You can only apply for HRA if you live in rented accommodation. Tenants do not have to pay income tax on the rent.
  • For persons other than employees, a rent deduction of 25% of total income or Rs 5,000 per month, whichever is less, can be claimed under Section 80GG.

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