The Income Tax Act prescribes rental income taxability for individuals receiving rent from a let out property. Meanwhile, this taxation or taxability of rental income is also eligible for specific deductions and exemptions under the IT Act.
Any income arising in the country is taxable in the hands of resident taxpayers and non-resident taxpayers. As a result, income generated from a rented or leased out property is taxable.
Rental income also includes the overall amount that one pays as a security deposit or advance. Moreover, there is no differentiation between residential and commercial property in terms of tax on rental income. Even the parking space attached to your house is considered a property, and if you let it out, the income generated is taxable.
Furthermore, the IT Department levies tax on the property depending on its annual value. You can determine the annual value by considering the higher of the following values:
As per the Income Tax Act, rental income from a property is taxable as per Section 24 under the heading ‘Income from house property.’ Meanwhile, any rent earned from a let out land is taxable under the heading ‘Income from other sources.’
Note that if the establishment is used for business or professional purposes, then this section is not applicable.
Rental income is the income you earn from renting out a property (either commercial or residential). The income earned from such a source is taxed under ‘Income from house property” as per Section 24 of the Income Tax Act. That said, if you earn an income by renting out a vacant land, it is considered under ‘Income from other sources.’
Gross income value is the ratio of property value and gross income. This calculation uses annual income and excludes expenses such as maintenance, utilities. If you want to calculate the gross income value of your property you have to divide the property value by the total income from the property.
Follow these steps to calculate your income tax on rental income:
The ground floor of a property is not taxable under ‘Income from House Property’. It is taxable under the income head ‘Business Profession Head’. It is considered as a self-occupied property and any income earned from this will be considered zero.
Any taxable income earned from renting out a property or from its transfer is considered ‘Income from House Property’ under the Income Tax Act. This is applicable for both residential and commercial properties.
There are specific provisions that allow exemption or deduction with regard to tax on rental income. As per Section 24 of Income Tax Act, you can claim the following deductions:
Standard deduction under this section is applicable to every taxpayer. So, if you own a property, you can claim a tax exemption of 30% of the property’s Net Annual Value.
However, this deduction is not applicable if you are staying in the house and it is the only property you own.
If you have purchased a property via a home loan and have rented out the property, then you can claim a tax deduction on the entire interest component that you pay towards your home loan annually.
If you have a property and you earn income by renting it out, the tax rates will be applied on income at the marginal rate for NRIs. If the total income incurred comes to less than Rs. 2.5 lakh, then no tax will be deducted.
However, if the income is more than that you have to pay taxes at a rate of 31.2% along with 4% education cess and surcharge. If you reside in a country which has a DTAA agreement with India then you can avoid the double-taxation on the income earned from your property.
The following are the ways in which you can save tax on rental income:
There are a few key points that you must remember regarding the taxability of rental income. Find them below:
Knowing the intricacies of rental income taxabilityis crucial for every taxpayer who receives any income from a let out property. Go through the above sections in detail and claim the tax deductions to minimise your tax outgo.
Ans: No, you earn rent by letting out your personal property. So, rental income is not an earned income. Instead, it is considered a passive income as per the ongoing income tax laws in the country.
Ans: There are no exceptions for any property regarding rental income taxability. Income tax for income earned from a property is applicable for residential and commercial properties alike. Even factories or garage extensions also come under this.
Ans: Property tax is a tax that is levied on a property. It is an annual amount that the property owner has to pay to the municipal corporation or local government. So, no, tenants do not have to pay the property tax. The sole person liable to pay this tax is the property owner.
Ans: Income accumulated from a let-out property is taxable in the hands of both non-resident and resident taxpayers. So, if an NRI owns a property in India and enjoys rental income from that property, he/she is liable to pay tax on that said income.
Ans: An NRI who has property in India must be a resident of a foreign nation. Now, he/she is also liable to pay tax in the foreign country on the rental income generated against a property situated in India. This is double taxation. To avoid this, the Income Tax Department analyses if there is any DTAA (Double Tax Avoidance Agreement) between India and that foreign country.
Ans: Gross Annual Value or GAV is recognised for the purpose of income tax. This means that the owner can claim a deduction against the particular amount of rent not received by him/her.
Ans: Ans: The tax on rental income is calculated by deducting the municipal taxes and deductions under Section 24 from the actual rent receivable/received or deemed rent.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
|Section 145A||Section 80P||Section 92CD|
|Section 281||Section 32(2)||Section 270A|
|Section 1399||Section 192A||Section 11|
|Section 35AD||Section 80C||Section 32|
|Section 206AA||Section 92E||Section 9|
|Section 153||Section 10(10D)||Section 194DA|
|Section 10AA||Section 80GG||Section 80TTB|
|Section 80JJAA||Section 1940||Section 23B|
|Section 206AB||Section 44AB||Section 87A|
|Section 115JB||Section 154||Section 194D|
|Section 194J(1)(ba)||Sectio 80U||Section 194K|
|Section 56-59||Section 80TTA||Section 234C|
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