Yes, you heard it right people. Rents can and will be taxed. The Income Tax Act of India has a separate heading titled Income from house property just for this. Using this they can tax the rent received by an owner. Let me throw in a gut punch before the joyride. Properties let out, houses or apartments rented out, leased spaces, rented out spaces for offices, factories, and you name it they are all taxable under this heading.
Now how do they calculate the rent? It’s calculated based on the annual value of the property which in turn is determined by the rent actually received or the reasonable rent to be let out, whichever is higher. To understand that better, if you lease or rent out your place for a small rent, then the tax calculated on the market average and if your rent is higher then it’s calculated on the higher rent.
Now let’s get onto the fun part. The owner is taxed for the rent, but if you become clever and sublet the property to someone else that rent will be under Income from other sources. The word ownership is so much confusing that if you have received just for namesake and legal shifting has not happened it’s still taxed. If the property is gifted to your spouse, it’s taxed and you have to pay until the spouse decides to live separately.
You’re allowed certain provisions like municipal taxes, deduction of rent not realized etc… after which the annual value is calculated. 30% of the annual value is then taken as income tax. Deduction is also allowed for interest of the loans pertaining to the property and the ceiling is set at 2 Lakhs.