Renting a home in a new city or leasing out your property? Both scenarios come with unique tax-saving opportunities that many salaried individuals overlook.
The Income Tax Act offers plenty of tools to reduce the tax burden. This guide on tax-saving is designed for salaried individuals who want to maximise their income.
Let’s explore how both– a renter & a landlord–can save on taxes.
Paying Rent? Claim HRA Exemption
If you're a salaried employee living in a rented accommodation and receive HRA as part of your salary structure, you're eligible for a substantial tax break under Section 10(13A) of the Income Tax Act.
How HRA Exemption Works
The tax department doesn't just give you a blanket exemption on your entire HRA amount. Instead, they apply a formula to determine how much of your HRA can be exempted from tax.
The HRA exemption is the lowest of:
Actual HRA received
50% of basic salary (for metro cities) or 40% (for non-metros)
Rent paid minus 10% of the basic salary
Example:
Basic salary: ₹40,000/month
HRA received: ₹20,000/month
Rent paid: ₹18,000/month
Calculation:
50% of basic = ₹20,000
Rent - 10% of basic = ₹18,000 - ₹4,000 = ₹14,000
Actual HRA received = ₹20,000
Since the lowest amount is ₹14,000/month, that's what you can claim as exempt from tax. This translates to an annual exemption of ₹1.68 lakhs, which can significantly reduce your taxable income.
Tip: Always keep proper rent receipts and a rental agreement as documentation. If your annual rent exceeds ₹1 lakh, you'll need to provide your landlord's PAN details in your tax return.
Earning Rent? Be a Smart Landlord
When you rent out your property, the rental income doesn't come to you tax-free. It's added to your total income and taxed according to your income tax slab. However, the good news is that the Income Tax Act allows several significant deductions that can substantially reduce your taxable rental income.
Standard Deduction:
The tax department automatically allows you to deduct 30% of your net annual value (NAV) as a standard deduction. The NAV is calculated as the rent received minus any municipal taxes paid on the property.
This standard deduction covers all the regular expenses of maintaining a rental property, such as repairs, painting, general maintenance, and more, without requiring proof of actual expenses.
Home Loan Interest:
If you've taken a home loan to purchase or construct the rented property, you can claim the entire interest paid on the loan as a deduction. Unlike self-occupied properties where interest deduction is capped at ₹2 lakhs, there's no upper limit for rented properties.
Example:
Rent earned: ₹25,000/month = ₹3,00,000/year
Municipal tax paid: ₹10,000
Net value = ₹2,90,000
Standard deduction (30%): ₹87,000
Home loan interest: ₹1,50,000
Taxable income = ₹2,90,000 - ₹87,000 - ₹1,50,000 = ₹53,000 only
That means you've saved tax on ₹2,37,000 worth of income. Depending on your tax slab, this could translate to significant savings.
Tip: Keep proper documentation of all municipal taxes paid and loan interest certificates from your bank for smooth tax filing.
What If You Pay Rent But Don’t Get HRA?
Not everyone receives HRA as part of their salary package. If you're a freelancer, consultant, or even a salaried employee whose company doesn't provide HRA, you might feel left out. But don't worry – Section 80GG of the Income Tax Act has got you covered.
You can still claim a deduction under Section 80GG if:
You don’t get HRA
You’re paying rent
You don’t own a house in the city where you work
The amount you can claim as a deduction is the lowest of:
₹5,000 per month (which means ₹60,000 annually)
25% of your total income
Actual rent paid minus 10% of your total income
Example:
Annual income: ₹6,00,000
Rent paid: ₹10,000/month = ₹1,20,000
25% of income = ₹1,50,000
Rent – 10% of income = ₹60,000
The lowest amount is ₹60,000, so that's your eligible deduction.
This provision is particularly valuable for gig workers, freelancers, consultants, or salaried employees whose compensation structure doesn't include HRA or those who have opted for the new tax regime.
Reminder: To claim this deduction, you'll need to fill out Form 10BA while filing your income tax return.
Tax-Saving Strategies for Both Renters and Landlords
1. Use ELSS for Extra Tax-Saving Punch
Even after claiming your rental-related deductions, you can further reduce your taxable income by investing in an Equity Linked Savings Scheme (ELSS).
Why Consider ELSS?
It falls under Section 80C (limit ₹1.5 lakh/year)
Lock-in period: just 3 years (lowest among tax-saving options)
Invest in the best tax-saving mutual fund options through SIPs
Market-linked, so risk is higher — but so is reward
Tip: You get the ELSS and tax benefit combo — deductions and potential capital growth.
Quick Quiz:1. You live in a rented apartment and receive HRA. What should you do? 2. You pay rent but don’t get HRA from your employer. What section helps you save tax?
3. You earn rent from a property. What’s the flat deduction you're allowed? (Answers at the end) |
1. Choose The Right Tax Regime
From FY 2023–24 onwards, the new tax regime is the default. But deductions like HRA, 80C, and ELSS tax saving apply only under the old regime.
Criteria | Old Regime | New Regime |
HRA Exemption | ✅ Allowed | ❌ Not allowed |
Home Loan Interest | ✅ Allowed (under Section 24B) | ❌ Not allowed |
ELSS and 80C | ✅ Allowed | ❌ Not allowed |
Lower Tax Rates | ❌ | ✅ |
Who should choose what?
If you have rent, ELSS, insurance, or home loan interest, then you might consider Old Regime.
If you don’t have major deductions, then you might consider the New Regime
Note: Many taxpayers end up paying more tax simply by selecting the wrong regime. It's worth calculating your tax liability under both regimes before making a choice.
What If You’re a Co-owner or Co-tenant?
Life’s rarely black and white — what if you own or rent with someone else?
Co-owning a Rental Property
If you co-own a property with your spouse, parent, or anyone else, the rental income is split between the co-owners based on their ownership percentage. Each co-owner is taxed separately on their share of the income.
This arrangement can lead to significant tax advantages, especially if one co-owner is in a lower tax bracket than the other.
Co-renting an Accommodation
If you're sharing a rented place with a roommate or family member, make sure your rent agreement reflects this arrangement. Each tenant should either:
Have separate rent receipts for their share, or
Have a shared agreement that clearly mentions the rent distribution
This way, both parties can claim their respective HRA exemptions without any complications.
Tax Planning Opportunity: When spouses co-own a property and both contribute to the home loan, they can each claim deductions on their respective shares of interest and principal repayment, potentially doubling the overall tax benefit.
Salary or Rental, Don’t Let Tax Eat It All
Whether you're working hard in a rented flat or earning rental income on family property, your money deserves better than blind taxes. Claim the HRA exemption, explore ELSS tax saving, and be smart about your deductions.
If you’ve ever asked, “How to save tax on salary?” — this guide has your back. And if you're a landlord, structure that income with care.
Tax saving for salaried people starts with good information, and if you get stuck somewhere, then experts on Pyng are always ready to help you through the situation.
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