Zero income tax on Rs 17 lakh rental income: How individual with flat in Mumbai paid no tax on high income

There is no need to pay any income tax if your income is up to Rs 5 lakh in old tax regime or up to Rs 12 lakh in new tax regime, due to the enhanced Section 87A tax rebate. For salaried individuals, there is an additional Rs 75,000 standard deduction, effectively making income up to Rs 12.75 lakh not liable for income tax under the new tax regime.

But TaxBuddy in a tweet shared the story of person who had a flat registered in Mumbai under his wife’s name. The wife earned Rs 17 lakh rental income from the flat yet didn't pay any tax. Sharing this example, TaxBuddy wrote, “If you own a rental property, you can also pay zero tax.”

How taxpayer paid no tax despite having Rs 17 lakh rental income from flat

In its tweet, TaxBuddy writes-

How Rs 17 lakh rental income can become tax-free

Rental income is taxed under Income from House Property.

��You get a 30% standard deduction.

��No bills or proofs required.

Calculations:

��Annual rent: Rs 17,00,000

��30% deduction: Rs 5,10,000

��Taxable income: Rs 11,90,000

Rental income tax calculation (Rs 17 lakh rent)

Particulars	Amount (Rs)	Notes
Annual rental income	17,00,000	Income from house property
Standard deduction (30%)	5,10,000	Flat deduction, no bills required
Taxable income after deduction	11,90,000	Used for tax calculation

Income tax under new tax regime

Particulars	Amount (Rs)	Notes
Taxable income	11,90,000	After a 30% standard deduction on rental income of Rs 17 lakh
Basic exemption limit	4,00,000
Income tax	59,000	On income from Rs 4,00,001 to Rs 11,9000
Rebate u/s 87A	59,000	Makes income of Rs 11.9 lakh tax-free
Final tax payable	0	Rs 11.9 lakh becomes tax-free

Income tax under old tax regime

Particulars	Amount (Rs)	Notes
Taxable income after deduction	11,90,000
Income tax	1,69,500	As per slab rates
Health & education cess (4%)	6,780
Final tax payable	1,76,280	87A Rebate not available above Rs 5 lakh income
Summary	Tax on Rs 17 lakh rental income	1,76,280

Extra deductions under old tax regime (beyond 30% standard deduction) for a zero income tax

Category	Section	Deduction type	Maximum limit (Rs)	Key conditions / notes
Home loan principal & property costs	80C	Principal repayment	1,50,000	Within overall 80C limit
Home purchase expenses	80C	Stamp duty & registration	1,50,000	Allowed only in year of payment; within 80C limit
Home loan interest (self-occupied)	24(b)	Interest deduction	2,00,000	For self-occupied property
Home loan interest (let-out property)	24(b)	Interest deduction	No upper limit	Full interest allowed for let-out property
Loss set-off benefit	Income tax rules	Set-off of house property loss	2,00,000	Loss can reduce other income per year

Why it was bought in the wife’s name

If the property owner:

��Has no other income

��And taxable income after deduction is ~₹11.9L

→ Final tax liability can become zero.

This is how Rs 17 lakh rent can result in no tax.

Important conditions

However, this works only if:

��Property ownership is genuine

��Rent goes to the owner’s account

��Funding and documentation are consistent

��No significant additional income exists

If you fund the property but show income elsewhere, clubbing provisions can apply in some cases.

Let’s get into details how tax liability can became zero in such cases

Your income tax depends on the source of your income. As far rental income from a flat of a house owned by an individual is concerned, Abhishek Soni, founder and CEO, Tax2Win.com, says it is taxed under the head ‘Income from House Property’ as per the Income-tax Act, 1961.

“It does not matter whether the property is residential or commercial. If you earn rent from it, the income is taxable under this head. Even if the property is not rented but is treated as ‘deemed let out’ (for example, if you own more than two houses), tax may still apply,” says Soni.

Why does a 30% standard deduction apply on such a rental income?

Soni explains a standard deduction of 30% of the Net Annual Value (NAV) is available on rental income.

● This deduction is allowed under Section 24(a) of the Income-tax Act, 1961.

● It is available in both the old tax regime and the new tax regime.

● There is no upper monetary limit. It is simply 30% of the NAV.

● You can claim it for let-out or deemed let-out property.

This 30% deduction is given for repairs and maintenance, even if your actual expenses are lower or higher.

Are there more tax benefits available on a let-out property under old and new tax regimes?

Soni says under the old regime, an individual taxpayer can claim interest on a home loan (up to Rs 2 lakh for self-occupied property; full interest for let-out property).

● Under the new regime, interest deduction for self-occupied property is not allowed, but it is allowed for a let-out property.

Two more important factors while calculating tax liability on rental income from a property

Soni says when calculating tax on rental income, the following steps are followed:

1. Gross Annual Value (GAV) – This is the total rent received or receivable during the year (or expected rent, whichever is higher as per rules).

2. From GAV, subtract municipal taxes actually paid by the owner.

This gives you the Net Annual Value (NAV).

3. From NAV, deduct:

○ 30% standard deduction

○ Interest on home loan (if applicable)

The final amount after these deductions is your taxable income from house property.

“So, tax is not calculated on the full rent received. It is calculated on the reduced amount after allowed deductions. This reduces the tax burden significantly,” explains Soni.