Everything you ever wanted to know about House Rent and Income Tax

House rent and Income tax; separately seem to be a much known subject for many, we all crystal clear when it comes to these concepts, income tax and house rent. But was causes huge confusion is the role our house plays in the income tax. There are income tax implications to the house we live in, then may it be rented or out own. We go through the registered rent agreement procedure; it has to pay off somehow! Things are different for those who stay in a rented house and for those who have their own houses. Different doesn’t mean that one is better than the other, it just means that the will give you benefits but in a different manner. Let us take a look at this.

  • For rented houses:

Living in a rented house makes you eligible to the HRA or the House Rent Allowance. This can benefit you with your tax greatly. Along with your basic salary there is this HRA mentioned in your monthly salary package. If you are confused as to what your HRA is you can calculate it. If you are staying in a metropolitan city the 50% of your basic salary is your HRA. Those who don’t stay in a metropolitan city, 40% of their basic salary are their HRA. As long as you are paying the rent and you have a proof of the same, you can claim HRA on a house that is under construction. A question that many bachelors ask: Can I show that I am paying rent to my parents? Though this is possible, the parents will have to show this rent that you are paying as their income in their tax. However, claiming an HRA on this will be tricky. It is legally alright if you are really paying the rent. But if you aren’t paying your parents any rent, that will be illegal.

  • For house owners that have rented it:

If you own a house and you have rented it, you have to mention the rent as your income along with your other income (job salary). This has 2 other parts to it, whether you fully own the house or you have a home loan running. In either of the two cases, the notional rent or the actual rent any one that is higher is considered. Notional rent is the minimum rate at which you are expected to rent your house.

Those that have a home loan running:

The rent you receive will be added in your income but only after the interest component of your loan is deducted from it. For example, if your rent is 2 lakhs and the interest you paid last year was 1.12 lakhs, then you can deduct this amount from the rent amount as show 88,000/- as your net income, because that is the actual amount you are left with. You can only consider the EMI for the deduction and not the principle. Investors these days buy property as capital appreciation and rent it out as the property rates are high. But this also facilitates that the asset doesn’t remain idle, it is maintained and used properly.

Those that fully own the house:

Those that fully own the house won’t have to deduct any amount as the interest on loan or anything. But you can show 70% of the rent as your income in your tax records. The remaining 30% can be deducted as the maintenance and for the other purposes of the house. For example, if the monthly rent is 4,000/- you can deduct the 30% and show the remaining 70% that is 2800/- as your income.

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