How to Rent a House: Important Legal Considerations

The first thing to do while planning to rent out your home is to find out all the details about the prevailing rental rates in your vicinity. You could consider approaching 2-3 brokers to find an accurate estimate. Next comes choosing a tenant. You may choose a tenant through a broker, advertisement or even word of mouth. Before finalizing a tenant, look into the prospects’ records, such as salary slips and bank statements to ensure their capacity to meet the rent obligations in a timely manner.

Rent Agreement: A Tool for Avoiding Legal Battles

To avoid future litigation related to the property, including vacating it when stated, all terms and conditions of the property let-out must be explicitly stated and authorized by both parties in a rent agreement or deed. Additionally, the agreement must be signed by two witnesses.

Though registering a rent deed is not mandatory, it is advisable to do so, particularly if the rent amount is substantial. Important components of a rent deed are: 

• The purpose of the let-out, whether residential or commercial
• Duration of tenancy, which is typically between 11 months and 5 years
• Clause for terminating the tenancy, including duration of the notice period
• Monetary details, including terms of deposit, monthly rent and periodical increase in rent
• Penalty for violating any clause of the agreement

If a rent agreement is made with a corporate entity, it should mention the details of the person authorized to execute the agreement on the company’s behalf.

Computing Rental Income for Income Tax

Alarmingly, many people in India are unaware of their liability to pay tax on rental income earned by them. However, a failure to pay tax on income from house property may result in a long legal battle with the IT department. The tax on income from house property is calculated after deducting corporation tax (if paid). On the remaining value, 30% is allowed as standard deduction. Finally, interest on loan (if applicable) is deducted from the income, and the remaining amount is taxable.