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      Effective Strategies to Save Tax with Rental income

      • 5 min read
      • Last Modified Date: September 6, 2023
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      Net Absorption is an important metric to understanding the profitability, sustainability, and stability of an investment in commercial real estate.

      Rental income is one of India’s most popular retirement planning instruments. Property and gold are two of the most popular investment choices for Indians apart from rental. The rental investment sector apart from retirement planning is faced with questions about the taxability of rental income. Rental Income is fairly constant and sustainable, which is a big plus for real estate investors. A decrease in rental value is an extremely uncommon occurrence. In reality, housing prices in places like Delhi, Hyderabad, and others are either constant or declining. There are two probable explanations for this: either potential purchasers are delaying their purchases or existing owners are refusing to sell owing to the current market conditions. Whatever the cause, investors are reaping the benefits of rising rental income.

      Rental income, like all other types of income, is taxed. One of the most often searched subjects on the internet is how to save money on taxes. It will be the icing on the cake if you can save money on your rental income. In other words, your Net Rental Income will continue to rise. Here are some tips for you to start saving tax on your rental investments.

      Also Read: Wanna save tax on your rental investment? Here is everything you should know!

      Most efficient tips to save tax on your rental income

      • Maintenance Fees

      One of the simplest methods to avoid tax is to subtract maintenance expenses from the rent collected. It’s a piece of low-hanging fruit. You simply have to mention the same in your rental agreements. The majority of the time, society maintenance fees are included in the rent. As a result, even if the maintenance expenses are not considered rental income, the landlord must pay tax. An owner can avoid tax on rental income by dividing the amount received into two portions. To give you an example, if your final rent is Rs 30,000 and your society maintenance fees are Rs 3,000, you should only receive Rs 27,000. You might include a condition in the lease agreement stating that the renter is responsible for paying maintenance fees directly to the organization. If the renter does not agree to this arrangement, you should request these two items from the tenant individually. In a nutshell, he’ll pay with two cheques. Any contribution to the association should be made directly by the renter or separately collected.

      • Joint Property

      This is another good option to save money on taxes. If your partner does not work, it is the best-case scenario. The rental income will be split according to who owns what percentage of the property. As a result, you can save tax on apportioned rental income to the co-owner.

      Assume that both the joint-owners are employed. If the co-owners are in separate tax brackets, this arrangement is advantageous. As a result, you can take advantage of your partner’s lower tax bracket to reduce the tax on rental income. Also, even if the EMI is paid by either the joint owners, rental income is distributed by the proportion of ownership in the property.

      Also Read: Tax Deductions on Rental Property- File Your Tax-Returns Smartly

      • Municipal Taxes

      Many individuals are unaware that municipal taxes such as property tax, sewage tax, and others can be deducted from rental income. The only caveat is that the owner is responsible for all local taxes. In many circumstances, tenants are responsible for paying municipal taxes. As a result, the owner is unable to claim a deduction for the tenant’s payment. Municipal taxes are deducted from your revenue from real estate, lowering your tax burden.

      • Standard Deduction

      It is believed that if you buy a property as an investment and rent it out, you will spend money on repairs and upkeep. It is, by definition, subjective. As a result, regardless of actual repair and maintenance costs, you can claim 30 percent of Net Annual Value as a Standard Deduction.

      • Semi-furnished/Fully-furnished Properties

      In these properties, the owners give amenities like WiFi, piped gas, DTH/Cable TV, newspaper, and so on. Normally, such fees are collected as part of the rent and paid to the appropriate authorities by the property owner. In such instances, you might request that the renter pay the bills and deduct the appropriate amount from the rent. Alternatively, you can collect it separately from the renter, making it a distinct payment from the rent. As a result, your rental revenue will be reduced.

      Also read: How to invest in real estate smartly to save tax

      There are a variety of different methods to save money on taxes, depending on the circumstances. We’ve compiled a list of the most frequent ways to save money on taxes in this post. In layman’s terms, you should separate core rent from municipal taxes and other property-related charges. You can ask the tenant to pay for your expenditures or repay you. It will also have a psychological benefit in that the rent would appear to be LOW for the home. For example, you may inform a potential renter that the property’s monthly rent is Rs 30,000. You might also argue that the rent is only Rs 24,000 and the remaining Rs 6,000 is for maintenance and other costs. In the second scenario, the likelihood of a contract closing is high. As a result, both the owner and the tenant benefit from the arrangement.

      Assetmonk is one of India’s most famous real estate platforms which offers opportunities in Bangalore, Chennai, and Hyderabad. We offer rental properties with higher rental income and also an IRR of 14-21%. If you are still searching for an ideal investment partner, then click on Assetmonk to start investing today!

      Effective Strategies to Save Tax with Rental income FAQ’S:

      Is rental income taxable?

      Rental income is taxed to the property owner under the heading “Income from House Property.” Rental income received by anybody other than the owner is subject to “Other sources” taxation.

      How much rental income is exempt from tax?

      Different parts of the IT Act allow you to claim deductions. Apart from that, if your real rent is less than 10% of your adjusted total income, you can claim a deduction of Rs 5,000 per month and 25% of your adjusted total income under Section 80GG.

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