<p>India’s real estate sector has undergone substantial changes, especially for individuals who primarily rely on rental properties as their primary source of income. </p>.<p>As per the recent Union Budget 2024 announcements, several tax regulations directly impact landlords. Property owners who rely entirely on rental income must be well-versed in the associated tax obligations and employ strategic approaches to handle them effectively.</p>.<p>In India, rental income is primarily categorised as ‘income from house property.’ This classification signifies that income generated from leasing residential properties, such as apartments and buildings, must be reported under this head. </p><p>It is important to distinguish this income from ‘Profits and gains from business and profession,’ ensuring that property owners accurately categorise their earnings to comply with taxation regulations.</p><p>Rental income encompasses various scenarios, including income from fully rented properties and composite rents, which include additional assets like appliances. </p><p>Moreover, owners of partially self-occupied properties can declare income from the rented portions, contributing to their overall taxable income. </p><p>However, specific instances, such as rental income received from sub-letting, may fall under ‘Income from Other Sources’ and are not taxable as rental income. </p>.<p>Calculating taxable rental income involves several steps that require careful consideration. The process begins with determining the gross annual value (GAV), which reflects the total rent received in a year. After municipal property taxes are deducted, the net annual value (NAV) is established. Property owners can then claim a standard deduction of 30% of NAV, allowing for expenses incurred in maintaining the property.</p><p>The interest paid on home loans used to purchase the rental property is also deductible. The final taxable income is derived by subtracting both the standard deduction and the home loan interest from the NAV.</p><p>Earlier this year on July 23, Finance Minister Nirmala Sitharaman announced a decline in Tax Deducted at Source (TDS) on house rent payments. TDS rate will come down to 2% from 5% for monthly rent payments beyond Rs 50,000 starting from October 1, 2024.</p>.<p>Numerous deductions are available to property owners, enhancing the financial viability of rental income. In addition to the aforementioned standard deduction, property owners can adjust GAV for any loss due to vacancy or unrealised rent.</p><p>Certain exemptions play a significant role in rental income taxation. Properties inhabited by owners for personal use and those under local authority possession may be exempt from tax. Furthermore, properties leased to trade unions or government-backed institutions are also excluded from taxation, presenting opportunities for landlords to optimise their financial positions.</p>.<p>When considering Goods and Services Tax (GST), it is essential to differentiate between residential and commercial properties. Income generated from renting residential properties is not subject to GST, which aids in making housing more affordable. Conversely, rental income from commercial properties incurs an 18% GST, creating further financial implications for property owners involved in commercial leasing.</p>.<p>Non-resident Indians (NRIs) entering the Indian rental market need to understand specific tax implications. Under Section 24, NRIs are taxed on rental income, and tenants must deduct TDS before making payments. NRIs should also examine the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence to avoid double taxation.</p>.<p>Understanding rental income taxation is vital for property owners in India. By comprehending classifications, calculations, and potential deductions, property owners can optimise their tax liabilities while ensuring compliance with regulatory frameworks. </p><p>This knowledge helps build financial understanding and supports the bigger goal of making the real estate sector more transparent and honest. As the real estate sector keeps changing, staying updated and getting professional advice is important for handling the challenges of rental income taxes.</p>.<p><em>(The writer is CEO & Cofounder of NoBroker)</em></p>
<p>India’s real estate sector has undergone substantial changes, especially for individuals who primarily rely on rental properties as their primary source of income. </p>.<p>As per the recent Union Budget 2024 announcements, several tax regulations directly impact landlords. Property owners who rely entirely on rental income must be well-versed in the associated tax obligations and employ strategic approaches to handle them effectively.</p>.<p>In India, rental income is primarily categorised as ‘income from house property.’ This classification signifies that income generated from leasing residential properties, such as apartments and buildings, must be reported under this head. </p><p>It is important to distinguish this income from ‘Profits and gains from business and profession,’ ensuring that property owners accurately categorise their earnings to comply with taxation regulations.</p><p>Rental income encompasses various scenarios, including income from fully rented properties and composite rents, which include additional assets like appliances. </p><p>Moreover, owners of partially self-occupied properties can declare income from the rented portions, contributing to their overall taxable income. </p><p>However, specific instances, such as rental income received from sub-letting, may fall under ‘Income from Other Sources’ and are not taxable as rental income. </p>.<p>Calculating taxable rental income involves several steps that require careful consideration. The process begins with determining the gross annual value (GAV), which reflects the total rent received in a year. After municipal property taxes are deducted, the net annual value (NAV) is established. Property owners can then claim a standard deduction of 30% of NAV, allowing for expenses incurred in maintaining the property.</p><p>The interest paid on home loans used to purchase the rental property is also deductible. The final taxable income is derived by subtracting both the standard deduction and the home loan interest from the NAV.</p><p>Earlier this year on July 23, Finance Minister Nirmala Sitharaman announced a decline in Tax Deducted at Source (TDS) on house rent payments. TDS rate will come down to 2% from 5% for monthly rent payments beyond Rs 50,000 starting from October 1, 2024.</p>.<p>Numerous deductions are available to property owners, enhancing the financial viability of rental income. In addition to the aforementioned standard deduction, property owners can adjust GAV for any loss due to vacancy or unrealised rent.</p><p>Certain exemptions play a significant role in rental income taxation. Properties inhabited by owners for personal use and those under local authority possession may be exempt from tax. Furthermore, properties leased to trade unions or government-backed institutions are also excluded from taxation, presenting opportunities for landlords to optimise their financial positions.</p>.<p>When considering Goods and Services Tax (GST), it is essential to differentiate between residential and commercial properties. Income generated from renting residential properties is not subject to GST, which aids in making housing more affordable. Conversely, rental income from commercial properties incurs an 18% GST, creating further financial implications for property owners involved in commercial leasing.</p>.<p>Non-resident Indians (NRIs) entering the Indian rental market need to understand specific tax implications. Under Section 24, NRIs are taxed on rental income, and tenants must deduct TDS before making payments. NRIs should also examine the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence to avoid double taxation.</p>.<p>Understanding rental income taxation is vital for property owners in India. By comprehending classifications, calculations, and potential deductions, property owners can optimise their tax liabilities while ensuring compliance with regulatory frameworks. </p><p>This knowledge helps build financial understanding and supports the bigger goal of making the real estate sector more transparent and honest. As the real estate sector keeps changing, staying updated and getting professional advice is important for handling the challenges of rental income taxes.</p>.<p><em>(The writer is CEO & Cofounder of NoBroker)</em></p>