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I have a house in India, that has been lying vacant for nearly 2 years. In December, it will be let out to rent. What would be the tax rules on the rental income?

Suraj
Answered on February 11,2020

Income from house property is calculated by first estimating the annual value of the property. You are allowed to deduct municipal taxes actually paid by you. Further, a standard deduction of 30% is allowed from the net value above. If any interest payments are being made towards a loan taken for construction or repairs to the house property, those can also be deducted as per allowed limits. The net amount arrived at is included in the income tax return of the taxpayer under the head income from house property. If you own more than one house property, the treatment may be different

The annual value of a self-occupied or a vacant house property is nil. The annual value of a rented property is higher of expected rent of the property or actual rent received.

Here the ‘expected rent’ of the property is the higher of (a) municipal valuation or (b) its fair rental value.

Now let’s understand what happens when a property is let out for a few months and is vacant for a few months of the year. In this case, two scenarios may arise:

Rent received is more than the expected rent. In such a case, the rent received shall be the annual value.
Rent received is less than the expected rent. In this case, the annual value shall be the higher of actual rent and expected rent and a vacation allowance can be claimed. This vacation allowance shall be based on the expected rent. Say, it was vacant for 3 months and expected rent is INR30,000 per month. The annual value shall be INR2,70,000.

From the annual value so calculated, municipal taxes paid will be deducted. And the rest of the deductions mentioned above can be claimed

I have a house in India, that has been lying vacant for nearly 2 years. In December, it will be let out to rent. What would be the tax rules on the rental income?

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