Formula to compute Income Tax on Rental Income of House Property

If you own a house/flat and have rented the same to earn rental income, the income so earned is not tax free. However, you do gain 30% deduction on this income while computing the tax. The Government gives this deduction because you spend money from your pocket to maintain the house throughout the year.

Moreover, the amount you have paid as house tax/municipal tax to the Local authorities is not counted in your income from House Property.

By way of the above two the formula to compute the taxable income on House Rent is as follows:

Taxable Rental Income = (Monthly Rent X 12 - House Tax or Municipal tax) X 0.7

The tax on the amount computed as per this formula will be charged as per your tax slab.

Example -

Joy earns rental income of Rs. 10000 per month from his flat in New Delhi

Total Rental Income = Rs. 10000 X 12 = Rs. 1,20,000

House Tax = Rs. 20,000

Net Rental Income = Rs. 1,20,000 - Rs. 20,000 = Rs. 1,00,000

Standard Deduction on Rental Income = 30% of Net Rental Income = Rs. 30,000

Taxable Rental Income = Net Rental Income - Standard Deduction = Rs. 70,000

Considering that Joy's total taxable income computed by adding his taxable income from salary and house property falls under the 20% bracket,

The annual income tax he needs to pay on Rental income will be 20% of Rs. 70,000 = Rs. 14,000

Please note that payment of Income tax honestly is your duty as a responsible citizen of the country. Nonetheless, paying more tax than due on you is foolishness.

Happy Investing !!!

MoneyWise India - Making India MoneyWise

Hi !! I am Manu from Mumbaii, India. I have created this blog to help make Indians moneywise.

During my evolution as an earning individual, I realized that I have not invested sufficiently to take care of my future post-retirement. About three years back I woke up and started understanding financial concepts slowly and steadily. It was definitely difficult to understand financial terms as I was a layman. After having learned and adopted this learning successfully over these years and earning quite sufficiently from my investments, I am venturing into this blog to extend my learnings to the Indian public. I am also banking on my 11 years of teaching experience ( I was an Assistant Professor in a reputed Engineering College in India teaching and guiding under-graduate and post-graduate students) to be able to explain these concepts in an easy to undertstand language to a layman in Financial Concepts.

The mission of this blog is "to create a more finanancially intelligent community of Indian investors".

In this blog I will be regularly posting articles to help you understand the concepts of investments, financial planning, retirement planning, investment vehicles and India Taxation.

This blog will not recommend specific products for investing but will only stick to techniques and vehicles for investment. Following this advise will be your descretion and success will depend on your risk appetite and dicipline of investing.

Happy Investing !!!