Tax saving on rental income

Tax planning 794 views 3 replies

Sidd Samant

Manager

29 Points Joined March 2011

Dear Sir,

I have a query regarding saving tax on the rental income.

Mr.X has 2 properties.

1.) Self occupied with housing loan (Interest component = 218000 and Principal = 100000)

2.) Let out with no housing loan.Rental income Rs.192000/- p.a

Questions:

1.Can Mr.X claim the remaining amount from the interest component (218000 -150000) 68000 as loss and set it off against the income of let out property? So he pays tax on (192000 -30% - 68000 )?

2.Can Mr.X make a lease agreement with his parents (senior citizens) and lease this property to them for a token amount (say 12000/- p.a) and then the parents sub-lease the apartment and earn the rental income which will not be taxable for them. So Mr.X wil have to pay tax only on Rs.12000/- ? Is this legally viable?

Are there any other way to save tax on the rental income?

Thanks for your help!

Replies (3)

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

As your interest component on the first house is subsequent & there is no loan going on for your second house, it is better if you would let-out your first house. In this way you can get the benefit of the following:

Deduction of Municipal tax paid from your rental Income

On the balance of the amount left, the Std ded of 30% & full interest amount would get deducted. Remainng would be your income from House Property. the second house you can show it as self-occupied & you need not pay any tax for that,as out of the two houses only one house can be considered as self-occupied.

Yes, you can make an lease agmt with your parents & pay lease rental to them. As their lease income will fall below the exmeption limit, they wud not abe liable to pay any tax, provided that they do not have any other income whihc would would cross the exemption limit.

On rental income there are only the below tax benefits that can be claimed:

Municipal Taxes, Interst on Loan & Std Ded @ 30%.

Nitil Kr. Agarwala

Persuing CS

264 Points Joined August 2010

Originally posted by : Giridhar S Karandikar
	As your interest component on the first house is subsequent & there is no loan going on for your second house, it is better if you would let-out your first house. In this way you can get the benefit of the following: Deduction of Municipal tax paid from your rental Income On the balance of the amount left, the Std ded of 30% & full interest amount would get deducted. Remainng would be your income from House Property. the second house you can show it as self-occupied & you need not pay any tax for that,as out of the two houses only one house can be considered as self-occupied. Yes, you can make an lease agmt with your parents & pay lease rental to them. As their lease income will fall below the exmeption limit, they wud not abe liable to pay any tax, provided that they do not have any other income whihc would would cross the exemption limit. On rental income there are only the below tax benefits that can be claimed: Municipal Taxes, Interst on Loan & Std Ded @ 30%.

agreed

Sidd Samant

Manager

29 Points Joined March 2011

Agreed, Thanks for the guidance.

But since I have already let out the house , and made a registered agreement for the second house, can I still show it as self-occupied for tax purpose?

Do I have the option to choose any one of my house as self-occupied / let out for Taxing pupose regardless of whether I reside there?

Also do i need to register the lease with my parents and pay the stamp-duty or I can just make the agreement on a stamp paper and not register it? Also can I make a lease agreement with retrospect effect for the last financial year?