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Whether you own a home or live in a rented house, income tax laws treat both scenarios differently. Rules around rental income, home loan interest, HRA, and Section 80GG deductions can help you save tax if you know them well. Here’s a detailed guide.

Tax on Rental Income from Property

For any property, the Gross Annual Value (GAV) is either the actual rent received or the potential annual rent, whichever is higher. Municipal taxes paid are deducted from GAV to arrive at the Net Annual Value (NAV). A standard 30% deduction is then allowed from NAV, and the remaining amount is taxable.

• Old Tax Regime: Interest paid on a home loan for a rented property is fully deductible under Section 24(b). Losses from house property can be set off against other income up to ₹2 lakh per year. Any remaining loss can be carried forward for 8 years, but only to offset house property income.

• New Tax Regime: Losses from house property cannot be set off against other income or carried forward. Interest deduction is limited to taxable rental income only.

Rental income, even if received under different arrangements, is taxable under Income from House Property. If a property is sublet, that income is taxable under Income from Other Sources.

Deductions During Construction

For under-construction or self-built homes, interest paid on a home loan is allowed as a deduction from the year of possession. Interest paid during construction is divided into five equal annual installments. If the property is sold within 5 years, the deduction is forfeited.

Joint Ownership of Property

Rental income from jointly owned property must be reported in proportion to each co-owner’s contribution. Adding a spouse as a co-owner just for the sake of name, without financial contribution, is not allowed.

Tax Relief on Rent Paid for Salaried Individuals (HRA)

Salaried employees receiving House Rent Allowance (HRA) can claim deduction on rented property under the old tax regime. The deduction is the least of the following:

1. Actual HRA received

2. 50% of basic salary in metro cities (40% in other cities)

3. Rent paid minus 10% of basic salary

Can Home Loan and HRA Benefits Be Claimed Together?

Yes, provided conditions are met. You can claim both benefits even if your own house is not rented out.

Tax Benefits for Self-Employed on Rent (Section 80GG)

Self-employed individuals can claim rent deduction under Section 80GG. The deduction is least of the following:

• ₹60,000 per year (₹5,000 per month), or

• 25% of total income, or

• Rent paid minus 10% of total income

Bottom line: Understanding these rules can help both homeowners and tenants maximize tax savings and plan finances more efficiently.