New income tax regime: How to pay zero tax on rental income of Rs 10 lakh

Tax-free income limit under new tax regime: The new tax regime introduced in India provides individuals with increased flexibility in optimizing their tax savings. One significant aspect of this regime is that salaried individuals with income upto Rs 7.5 lakh, can claim deductions to enjoy zero tax liablitilty. And for those with only rental income, this tax-free income limit rises even further to Rs 10 lakh. 

Finance Minister Nirmala Sitharaman had announced changes in the new income tax regime in her Budget 2023 speech, in order to make it more attractive for taxpayers who do not have investments and exemptions to claim. The new tax slabs introduced in the Budget mean that anyone with income upto Rs 7.5 lakh will have zero tax liability, and for those who receive rental income, this limit can be increased to an even higher amount of Rs 10 lakh. Here we try to understand the provisions of the new tax regime and how individuals can minimize their tax liability effectively by leveraging it — 

New income tax regime: How salaried taxpayers can pay zero tax on income of Rs 7.5 lakh 

Changes announced in the new tax regime in the Budget FY23 meant that any salaried individual with income upto Rs 7.5 lakh will not have to pay any income tax by following these steps:

If a person earns up to Rs 7.5 and opts for the new income tax regime, then first and foremost, they can avail a standard deduction of Rs 50,000 which is applicable for salaried taxpayers, bringing the taxable income down to Rs 7 lakh.

There is zero tax for Rs 3 lakh slab, then for the next Rs 3 lakh in the slot between Rs 3 lakh to Rs 6 lakhs income, individuals will have to pay 5% income tax — which comes upto Rs 15,000.

Then, for the remaining Rs 1 lakh income between Rs 6 lakh and Rs 7 lakh, they have to pay 10% tax — which comes upto Rs 10,000. 

Adding the Rs 15,000 and Rs 10,000 together, their total tax liability comes upto Rs 25,000.

However, salaried employees can avail a rebate of Rs 25,000 under section 87A, it brings their tax liability down to zero. 

New income tax regime: How to pay zero tax on rental income upto Rs 10 lakh

As per tax experts, if an individual has only rental income, and no other income and deduction, then they can receive rental income upto Rs 10 lakh without triggering any tax liability. Here is how that is possible —

Rental income from house property is taxable barring deductions related to specific expenditures. These expenses include property tax paid on the said house and interest paid on home loan. And the tax regime also allows a standard deduction of 30% on the net annual value towards repairs and maintenance of the said property.

If we take into consideration a 30% standard deduction in case the landlord receives a total of Rs 10 lakh as rent, then the standard deduction amount comes upto Rs 3 lakhs. And when this deduction for specific expenditures is subtracted from the Rs 10 lakh collected as rent, it comes down to Rs 7 lakh — which is tax-free for non-salaried taxpayers under the New Tax Regime. 

So, in this case, the landlord whose only source of income is rent, will not have to pay any taxes.

Apart from this it is always advisable to evaluate your options, compare the tax savings in both tax regimes, and consider investing in tax-saving instruments to further reduce your tax liability. By following these strategies, you can effectively achieve substantial tax savings.