How is House Rent calculated for Income Tax Calculation?

To do a house rent income tax calculation, the property’s Gross Annual Value (GAV) is taken into consideration. However, the landlord must deduct the standard deduction, municipal taxes, and the interest paid towards the home loan (if any).

Let’s look at an example to see how this works in more depth.

Assume you own a home and have rented it out for Rs 35,000 a month. You have paid Rs 25,000 in municipal tax (calculated based on the property’s Unit Area System). The house you have rented out was purchased with a loan, and you have paid Rs 30,000 towards interest. In this situation, the taxable income will be determined as follows.

Parameters Amount (in Rs.)
Gross Annual Value (actual rent received in a year)Rs. 6,00,000 (50,000 × 12)
Deduct Municipal Taxes(Rs. 25,000)
Net Annual Value of the Property Rs. 5,75,000
30% Standard Deduction (30% of 5,75,000)(Rs. 1,72,500)
Interest on Home Loan(Rs. 30,000)
Income from House Property Rs. 3,72,5000

Since the GAV of the property exceeds Rs 2.5 lakhs and you receive Rs 50,000 per month in rental income, you must pay tax in this scenario. However, if the annual rental income is less than Rs 2.5 lakhs, the amount is tax-free.

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