How you can claim deductions and save on taxes from rental income

livemint.com:

Rent can be an additional source of income for salaried individuals who have invested in property. While real estate as an investment may have its challenges in terms of liquidity and high capital requirement, rental income can complement one's salary.

However, rental income is taxed at the individual's slab rate. But there are deductions available on rental income for individuals who choose to stick with the old tax regime.

If you are in receipt of rental income, you can first get a deduction on municipal taxes. Then on the balance, there is a standard deduction of 30%, which accounts for repairs, maintenance and all other expenses.

Apart from this, you can deduct interest payment if there is an outstanding home loan on the let-out property before arriving at your net rental income for taxation. The entire interest paid can be claimed as a deduction against rental income in the old tax regime. However, the total loss that can be claimed is restricted.

«You can claim full interest paid, but the maximum loss in a financial year can be ₹2 lakh for a let-out property in the old tax regime. If there is any balance loss, you can either set it off against other income or carry it forward to set off against rental income in subsequent years,» explained Balwant Jain, a Mumbai-based investment and tax expert.

Assume you get a monthly rent of ₹20,000 on a property, which works out to ₹2.4 lakh a year. After deducting ₹20,000 as municipal tax, you are left with ₹2.2 lakh. After 30% standard deduction ( ₹66,000), you are left with ₹1.54 lakh.

Now, assuming you have also paid ₹4 lakh as interest on a housing loan during the same financial year. You can set off this interest against the rental income to derive your net rental income.