Want to cut taxes on rental income? CA explains 4-step formula to claim maximum deductions

Chartered Accountant Nitin Kaushik has unveiled a straightforward method for individuals seeking to reduce their tax burdens on house property income, particularly for those with home loans. This guide provides an efficient approach to optimise deductions and legally reduce taxable income.

Kaushik advises starting with the Gross Annual Value (GAV) of the property, which represents either the notional rental value or the actual rent received. From this figure, property taxes paid are subtracted to determine the Net Annual Value (NAV). This is a crucial step in understanding the tax implications of property ownership.

Under Section 24(a) of the Income Tax Act, homeowners can claim a standard deduction of 30% on the NAV. This deduction is available irrespective of actual maintenance or repair expenses incurred. Additionally, deductions on home loan interest payments can be substantial for taxpayers. "If the property is self-occupied, the deduction is capped at Rs 2 lakh per year. But for let-out properties, there is no cap on interest deduction," stated Kaushik. These provisions are designed to offer significant relief to property owners.

For example, if the GAV is ₹5 lakh and property taxes amount to ₹20,000, the NAV becomes ₹4.8 lakh. After applying the 30% standard deduction, the figure reduces by ₹1.44 lakh. Consequently, if ₹1 lakh is paid as home loan interest, the taxable income is lowered to ₹1.36 lakh. This method is designed to provide a structured advantage within the legal framework. Kaushik emphasised, "This isn’t a loophole—it’s a structured benefit laid out in the law."

Kaushik also highlighted the importance of understanding these provisions to maximise their potential benefits: "Understanding and using these provisions wisely can significantly reduce your tax outgo." Taxpayers are encouraged to consult with their Chartered Accountant or financial advisor to accurately claim these benefits and optimise their tax savings. This ensures compliance and maximises the financial advantages available.

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. The cuts, which range up to 25 basis points, have lowered the MCLR to a range of 7.95% to 8.90%, offering potential relief for home loan borrowers. This reduction is part of a broader strategy to make borrowing more accessible.

SBI's rate cut is expected to ease the financial burden on homeowners. With the External Benchmark Lending Rate (EBLR) and Repo Linked Lending Rate (RLLR) now reduced, home loans linked to these rates may see decreased EMIs. This move could make home ownership more affordable, reflecting positively on both new and existing borrowers. The changes are anticipated to have a significant impact on the housing market.