The rent received from a house property is treated as income and taxed as per slab. However, certain deductions are eligible for this taxable amount. Budget 2017 had restricted the amount of deduction one can claim. Here is an illustration and a revised real estate returns calculator.
The taxable income is given by: rent - (loss from house property)
Loss from house property (old rule)
loss from house property = Rental income - (corporation+water/sewage tax) - (standard deduction) - (interest component of home loan)
This entire amount can be set off from salary income.
Standard deduction = 30% of (rent - taxes)
Loss from house property (new rule)
The loss from house property (calculated as above) has a ceiling of Rs. Two Lakhs.
"However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act".
This implies the maximum tax one can save = 2,00,000 x tax slab (+cess).
Earlier there was no limit on the tax that one can save.
I have now modified the real estate returns calculator to account for this new rule.
Suppose you have purchased a property on a loan and let out on rent, it will take into account, tax benefits, expenses and rental income to give the annualised return year after year. So it can be used to calculate when one will break-even. It can also be used if the property is fully paid for.
You can Download the Feb 2017 Real Estate Returns Calculator and read more about how it works here.
Related post: Five reasons why I will never invest in real estate
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