Tax breaks are available for landlords who have income from rentals

The rental income you receive from your investments in real estate can make a significant impact on the returns on your portfolio. In order to maximize your returns as a landlord, you need to be aware of the tax breaks that are available.

Tax benefits available for landlords

It is possible for you to reduce the amount of tax that you are required to pay on the rental income if the property was purchased jointly.

In India, income from rentals is subject to taxation under the country's income tax laws. If you own a property and have rented it out to another individual, you have a responsibility to educate yourself on how to reduce the amount of money that you have to pay in taxes. The rental income you receive from your investments in real estate can make a significant impact on the returns on your portfolio. In order to maximize your returns as a landlord, you need to be aware of the tax breaks that are available.

Before we look at the various tax breaks that are offered to landlords, let's take a look at the way that income from rentals is taxed in India.

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Responsibility Regarding Taxes Due On Rental Income

Rental income is subject to taxation at the individual's rate of income taxation (I-T) slab. For instance, if an individual does not have any other source of income and earns only rental income in an accounting year that is less than Rs 2.5 lakh, then the individual will not be subject to any taxation because their income is less than the taxable limit. What happens if the income from renting the property grows by twenty percent in the following fiscal year? If so, will it be subject to taxation? It is possible that it will not be taxed at all due to the fact that rental income is eligible for certain tax benefits. Let's investigate the tax breaks that landlords can take advantage of to lower the amount of money they owe in taxes.

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Income From Rental Properties Is Eligible For The Standard Deduction

With the assistance of the standard deduction, the landlord can reduce the amount of income that is subject to taxation. When calculating net income from house and property, you can arrive at that number by applying a standard deduction of thirty percent to the net asset value (which is the gross rent received "less" the property taxes paid by the landlord). For illustration purposes, an individual has a rental income of Rs 3.2 lakh and pays Rs 20,000 in municipal taxes. This brings his total annual income to Rs 3.2 lakh. The net asset value would be Rs 3 lakh (Rs 320,000 "less" Rs 20,000), and the standard deduction equaling 30 percent of NAV would amount to Rs 90,000. Therefore, the taxable income will be reduced by Rs 210,000 because the net income from the house and property will be Rs 300,000 "less" Rs 90,000, or Rs 210,000.

Additionally, non-resident aliens in the United States are eligible to claim the standard deduction for their income from real estate.

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Tax Benefit Against Home Loan

You are eligible to claim a tax deduction for the interest paid on a home loan if you have rented out a residential property that you purchased with a home loan and then rented out. In accordance with the provisions of Section 24(b) of the Income Tax Act, a landlord is eligible to claim a tax deduction of up to Rs 2 lakh for interest payments made on a home loan. If the person taking out the home loan is also eligible for tax relief under Section 80EEA, he or she may be able to claim a benefit of up to Rs. 1.5 lakh. This benefit is greater than the deduction benefit that is available under Section 24. Therefore, if you get rental income from a property that you bought with a home loan, you can get a deduction against the interest that you paid up to the amount of Rs 3.5 lakh.

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Tax Advantages for Joint Property Ownership

It is possible for you to reduce the amount of tax that you are required to pay on the rental income if the property was purchased jointly. In the case of co-ownership, in which each person's proportionate share of the property is specified in the conveyance deed, all co-owners are eligible to make a tax claim proportional to the percentage of ownership they hold. 

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Therefore, each co-owner of the property has the ability to make a claim for the tax benefit under Sections 24 and 80EEA, provided that they do not exceed the maximum applicable deduction limits. It is imperative that the total combined deduction that is sought by the co-owners of the property does not go beyond the amount of interest that was paid on the mortgage during the given fiscal year.

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When you are making plans to claim the tax benefits that come with being a landlord, you should keep documents such as rent agreements and property deeds on hand. You never know when the IT department will send you a question about the rental income, and you may need these documents as proof.

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