How Are Rental Income Taxes Calculated?

Umme Kulsum U

But how much should I pay? And how regularly should I pay? Are you someone who thinks all your rental income goes away in paying taxes?

Ok ok! We understand your concerns. 

In this blog we will be understanding the concepts of taxon rent and exciting ways of reducing your rental tax by making some interesting deductions! 

So do not worry! After reading this blog you will not end up paying taxes. 

But you know what?

We have a surprise for you! 

And that is… . 

Here we will also disclose the deductions which you can make before paying the tax. 

And these deductions can be made for any kind of property be it residential or commercial. 

Irrespective of whether you have rented a shop and rented a house. 

You can definitely make these deductions! 

Let’s look at the conversation between Siya and Riya! 

Siya: Hey Riya 

Riya: Hello! 

Siya:  Why are you so sad? I mean you just bought a new property for yourself and you must enjoy it! 

Riya: Well! Siya these property taxes kill my joy. 

Siya: But what are you worrying about? You do not have to pay tax on all your rental income.

Riya: What do you mean? 

Siya: Alright my dear Siya! We will understand this with our experts at Rood land. 

(End of the conversation) 

Did you read the conversation between our clients Riya and Siya? 

Are you also wondering what Riya said? 

Ok then is for you! 

What is Rental Income? 

Rental income is the income you receive by renting a house or shop of your property. 

What is tax on rental income? 

From the income you receive as a rent for your property, a part of it has to be paid as tax. 

This is tax on rental income. 

Example: Mr Gupta rents his shop for 20,000 per month. 

Now Mr Gupta has to pay a part of this 20,000 as tax. 

This is tax on rental income. 

How Regularly Should You Pay Tax? 

Well! This has to be paid once in every twelve months. 

This tax should not be paid monthly but annually. 

It means Mr Gupta has to pay this tax after receiving the rent for twelve months. 

Should you pay tax on all full rental income? 

Fortunately, the answer is no. 

No you don’t have to pax tax on all the rent you receive. 

There are some deductions you can make.

This is the gist of the blog. 

This is really exciting. 

So What Are These Deductions?

Basically there are 4 types of deductions which can be deducted before calculating the tax on annual rent. 

Believe us! This is extremely beneficial for the owners. 

So here we go! 

  1. Unrealized Rent
  2. Municipal taxes
  3. Standard deductions
  4. Interest on loans 

Now Lets Understand What Do We Mean by These? 

  • Unrealized rent means the rent which the owner has not received. It might be that for some reason the owner has not received the rent. 

This rent can be deducted and tax on this unpaid rent will not be paid.

Example: Mr Gupta did not receive rent for two months from his tenants. Then Mr Gupta can deduct the rent which was not paid and then calculate the taxes. 

  • Municipal taxes: The municipal taxes which you paid can be deducted. If municipal taxes have not been paid then this cannot be deducted. 
  • Standard deduction: This is related to the maintenance charges of property. This has been set at 30 percent. The owner can deduct 30 percent from the annual rent. 
  • Interest on the loan: If you (owner) has taken loan for the construction of the building. Then the total interest he has paid on the loan can be deducted from the annual rent. 

I know this looks complicated. But no worries . Let’s understand with an example. 

Suppose the annual rent received by Mr Gupta is 1.2 lakhs. 

Unrealized rent 5 percent (1 month) Municipal taxes – 5 percent 

Standard deduction – 30 percent

Interest rates – 10 percent

Total is 40 percent

Now Mr Gupta (the owner) has to deduct 40 percent and pay tax only on the remaining 60 percent of the rent. 

So these were the important deductions which can be made. 

These deductions can be made for any shop or house you rent. 

Even if you own more than one property! 

This was amazing right!  This is a huge relief for all property tax prayers. This makes the experience of buying a property more exciting and these deductions are incredible as they can amount to more that 40% of your rent. 

It means you need not pay tax on 40 percent of your rental income. 

Now tax paying is no longer a bitter experience.

Here we come to an end of our journey to understand tax on rental income and it’s deductions. 

I hope all the owners or taxpayers can now take a long breath and flush all negative thoughts associated with dental tax. 

Reading this , I hope you feel it is worth buying a property for yourselves. 


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