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A case study on earning Income from Rent

A case study on earning Income from Rent

How is rental income added to the owner’s income tax return? Let’s find out with this example.

Aditya has let out his apartment in Mumbai for Rs. 35,000 per month. It’s time to file his tax returns for this year and for that he needs to determine how much he owes the I-T Department.

These are the other expenses related to the house during the year:

He paid Rs.25,000 in property taxes in November and spent Rs.8,000 in repairs and Rs.30,000 in electricity bills. He is also paying an interest of Rs.2,20,000 on the money borrowed to build the house. Since the property is let out, the entire interest on the home loan can be claimed as a deduction.

Aditya needs to find out the gross annual value of the property to calculate income from house property. For a rented house, it is the annual rent collected. Rent collected must be higher than or equal to the reasonable rent of the property as determined by the municipality. In Aditya’s case, the municipality has determined the reasonable rent to be Rs. 32,000. Therefore, the gross annual value is Rs. 4,20,000.

Subtract property tax payment to arrive at net annual value. Section 24 of the Income Tax Act allows Aditya to claim a standard deduction of 30% on the net annual value. Aditya’s home loan interest is also fully deductible.

This is how his income from house property is calculated.

Gross Annual Value4,20,000
Less: Property Taxes-25,000
Net annual value3,95,000
Less: standard deduction at 30%-1,18,500
Less: Interest on money borrowed-2,20,000
Income from house property56,500

Note that Aditya’s expenses on repairs and electricity are not allowed to be deducted. Also note that if Aditya was getting rental income from more than one house property, he would have to calculate for each one of them individually in the same manner as above.

A case study on earning Income from Rent



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