Rental Income Tax Too High? Cut It Drastically with These Legal Deductions

Published on: July 16, 2025

Rental Income Tax Too High? Cut It Drastically with These Legal Deductions

Paying too much tax on your rental income? You might be missing out on significant savings! A 4-step formula from Chartered Accountant Nitin Kaushik can help you drastically reduce your taxable income, smartly and legally.

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Table of Contents

Maximize Your Rental Income Deductions

Here’s how to optimize your house property returns, from claiming property tax to home loan interest:

Start with Gross Annual Value (GAV): This is either the actual rent you’ve received or the notional rental value of your property.
Calculate Net Annual Value (NAV): Simply subtract any property taxes paid from your GAV. This gives you your crucial NAV.
Claim Your Standard Deduction: Under Section 24(a) of the Income Tax Act, you can claim a flat 30% standard deduction on your NAV. This is available even if your actual maintenance or repair expenses are lower (or zero!).
Deduct Home Loan Interest: This is where the savings can really add up!
- For let-out properties, there’s no cap on interest deduction under Section 24(b). You can deduct the entire interest paid on your home loan.
- For self-occupied properties, the deduction is capped at ₹2 lakh per year.

Example in Action:

Imagine your GAV is ₹5 lakh, and you paid ₹20,000 in property taxes.

Your NAV would be ₹4.8 lakh (₹5,00,000 – ₹20,000).
The 30% standard deduction brings that down by ₹1.44 lakh.
If you paid ₹1 lakh in home loan interest, your taxable income would be further reduced to ₹2.36 lakh (₹4,80,000 – ₹1,44,000 – ₹1,00,000).

As Kaushik emphasizes, “This isn’t a loophole—it’s a structured benefit laid out in the law.” Understanding and using these provisions wisely can significantly cut your tax outgo. Always consider consulting with a Chartered Accountant or financial advisor to accurately claim these benefits.

Good News for Home Loan Borrowers!

In related news, the State Bank of India (SBI) has reduced its Marginal Cost of Funds-based Lending Rates (MCLR) across all tenures, effective July 15, 2025. These cuts, up to 25 basis points, lower the MCLR to a range of 7.95% to 8.90%.

This move is expected to ease the financial burden on homeowners. With the External Benchmark Lending Rate (EBLR) and Repo Linked Lending Rate (RLLR) also reduced, home loans linked to these rates may see decreased EMIs. This could make home ownership more affordable for both new and existing borrowers.