Section I: Income Tax and Your House

• Ques: Benefits of rental income
• Ans: Key points:
  • You have to pay tax on only 70% of rental income, as a deduction of 30% is allowed on rental income. The effective rate of tax comes to 21% (70% x 30%), even if you are in 30% tax bracket.
  • You will get the benefit of real estate appreciation (assuming 10% annually).
  • If you need funds, you can take finance against future lease rentals of your home. You will not need to sell the house for liquidity.