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1. Gross Rental Income: This is the total rent received from tenants before any expenses.

2. Operating Expenses: Deduct all related expenses such as:

   • Advertisement

   • Travel

   • Commissions

   • Management fees

   • Repairs and maintenance

   • Utilities

   • Property taxes

   • Insurance

   • Depreciation on the property

3. Net Rental Income: Gross rental income minus operating expenses and depreciation is the net rental income, which is taxed as ordinary income.

4. Reporting: Rental income is typically reported via Form 1040, Schedule E. In addition to Federal income tax, state income taxes may also apply based on the state’s tax laws.

For more details, refer to  IRS website, topic 414.

Rental Income Calculation in India

1. Gross Annual Value (GAV): This is the annual rent received from the tenant.

2. Net Annual Value (NAV): GAV minus the property municipal tax paid.

3. Standard Deduction: Deduct 30% of the NAV for other expenses (Section 24A of the Income Tax Act).

4. Income from House Property: NAV minus the standard deduction is the taxable income from house property.

5. Operating Expenses: In India, only specific expenses such as property municipal tax and interest (up to a limit) are deductible. Depreciation and other operating expenses are not deductible.

For practical examples related to the calculation of rental income, refer to the India Tax website.

Business Income from Renting Property in India

• If renting out property is considered a business, all property rental-related expenses are treated as business expenses, similar to the USA.

• Forming a company can help in treating rental income as business income, but it involves additional paperwork and compliance.

Key Differences

• Deductions: The USA allows for a wide range of deductible expenses including depreciation, whereas India allows only specific deductions and a 30% standard deduction.

• Tax Treatment: In India, rental income is categorized under ‘Income from House Property,’ unless it is treated as business income. In the USA, it is treated as ordinary income.

Impact on Taxable Income

• The taxable rental income calculated under USA and Indian tax laws can differ significantly due to the varying allowed deductions.

• Rental income may result in a loss on USA tax returns but could be a profit for Indian taxation.

Double Taxation and Relief

• When rental income is taxed in both India and the USA, double taxation rules apply. Relief can be obtained under country-specific tax laws and Double Taxation Avoidance Agreements (DTAA).