What are the Tax Benefits on a Let-Out Property

24 December, 2024

Synopsis

• Tax benefits for let-out properties include a 30% standard deduction for maintenance costs and related expenses.

• Deductions for municipal taxes and vacancy periods help reduce taxable rental income.

• Co-ownership benefits allow separate deductions based on each owner's share, alongside provisions for interest on housing loans without an upper limit.
  
  

Owning a let-out or rental property offers numerous financial advantages, with the potential to significantly maximise your overall income through rental payments and various tax benefits. If you own a property, it is important for you to understand these advantages so that you can maximise your investment returns. By leveraging tax deductions, exemptions and credits, you can reduce your taxable income and increase your net profit. This article explores the main tax advantages for let-out or rental properties.

What is a Let-Out Property

A let-out property is an owned house property which you have rented out to other individuals for a year or part of the year.

Understanding Tax Benefits on Let Out Property

Income as rent from your let-out property is taxable under “Income from House Property”. The tax laws, however, provide some deductions to reduce your taxable income. Here are some tax benefits you can avail through deductions:

• Standard Deduction

A major tax relief on let-out property is the standard deduction of 30% of the net annual value per section 24B of the Income Tax Act, 1961. This deduction covers repairs, maintenance and other related expenses, regardless of the actual amount spent.

• Municipal Taxes

Municipal taxes like property tax, paid during the year are deductible from the annual value of the property. This deduction is allowed under special circumstances where the taxes in question have been discharged by the owner and not the tenant.

• Vacancy Period

Even though your property may not have been occupied for some time, you can claim a deduction for the vacancy period. The annual value of the property is adjusted according to the period that the property was not rented, reducing your tax rental income.

• Co-Ownership

When the property is co-owned, each owner can claim a separate deduction based on their share of the property. The income from the estate and associated deductions will be split, reducing the overall tax liability.

• Depreciation

Although depreciation is not a direct deduction under ‘income from house property’, it can be claimed if the property is considered part of your business assets. This is particularly important for those who release commercial property as part of their business operations.

• Section 80C

While not specific to rental income, it is important to note that basic home loan repayments of up to ₹1,50,000 are deductible under Section 80C of the I-T Act. As this deduction is available regardless of whether the property is owned or let out.

• Interest on Housing Loans for Let Out Property

When you take out a loan to buy, build or renovate your let-out property, you can claim a deduction for the interest paid on the loan. Unlike self-occupied properties, there is no upper limit for claiming this deduction.

Looking for a Home Loan? Choose HDFC Bank

If you're thinking about taking a loan to buy a let-out property, it is wise to consider the attractive interest rates and flexible repayment options offered by HDFC Bank. HDFC Bank offers a wide range of Home Loans at competitive interest rates. When you choose HDFC Bank for your financing needs, you can benefit from a streamlined application process and top-notch customer service.

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 *Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Home Loan at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.