IT Everything You Need to Know About Rental Income Taxation in India
What is Rental Income?
Rental income is the revenue received by an individual or company from the rental or leasing of a property. It reflects the regular payments received from tenants or lessees in exchange for the right to inhabit or use the property for a set period of time. Rental revenue can be generated from a variety of properties, including single-family homes, apartments, commercial buildings, and even vacant land. It provides passive income to property owners and investors, contributing to their overall financial portfolio. Rental revenue is normally taxed, and expenses such as mortgage payments, property maintenance, and management fees are removed to calculate net rental income.
How is income tax on rental income calculated?
Calculate the rental property’s Gross Annual Value (GAV). The gross yearly value is the annual rent received from the renter. Subtract the amount of Property Tax paid from the Gross Annual Value to get the Net Annual Value (NAV). Property tax, often known as house tax, is a municipal tax that is paid to the corresponding local authority once a year. Deduct 30% of the Net Annual Value (NAV) as a standard deduction allowed under Section 24A of the Income Tax Act.
If the owner of a rented property has a housing loan, the total amount of interest paid on the housing loan throughout the fiscal year is eligible to be deducted from the rental income after the standard deduction. This rebate is allowed under Section 24B of the Income Tax Act. The remainder is an individual’s taxable rental income, on which income tax is payable in accordance with the applicable tax slab.
For example, if an apartment’s monthly rent is Rs. 25,000, then:
- GAV = 12 months x 25000 = Rs. 3,00,000/-
- Rs. 20,000 in property tax paid.
- Net Annual Value = Rs. 3,000,000 minus Rs 20,000 = Rs. 280,000.
- The standard deduction is 30% of the NAV, which equals Rs. 84,000.
- Home loan interest paid: Rs. 80,000.
- Taxable income: Rs. 1,16,000 (Rs. 2,80,000 – Rs. 84,000 – Rs. 80,000).
If the GAV had been less than Rs. 2.5 Lakhs, the rental income would have been tax-free.
What is the definition of House Property Income?
Rent from the following sources is included in income from house property:
- Rental revenue from a house: Rental income from a property, whether an apartment, a building, or land owned by the taxpayer, is taxed under the heading “Income from House Property.”
- Rental revenue from a shop: Rental income from a property, a store being a building or land, of which the taxpayer is the owner, is taxed under the heading Income from House Property.
- Rental income from a composite rent: In cases where letting out the building and letting out other assets are separable, such as letting out a washing machine and other gadgets along with the house, the rent received for the house will be taxed under ‘Income from House Property,’ while rent from other assets will be taxed under ‘Income from Other Profits and gains from business and profession.
Which provision of the tax code taxes household income?
Income from real estate will be taxed under Section 22 in accordance with Indian tax laws. The charge provision states that “apart than such portions of such property, the yearly worth of property consisting of any buildings or lands appurtenant thereto of Any property owned by the assessee and used by him to carry on a trade or business, the earnings of which are subject to income tax, is taxable under the heading “Income from House Property.”
Section 22 states that in order to tax any income under the heading “Income from House Property,” the following requirements must be met:
- There should be a piece of property with a building or land attached to it.
- The assessee must be the legal owner of the property.
- The property owner is not allowed to utilize the property for his or her trade or profession, the profits of which are subject to income tax.
Conclusion
In conclusion, understanding the taxation of rental revenue in India is critical for property owners. Rental income is taxed since it is considered part of the owner’s overall income. Expenses incurred in relation to the property can be deducted. Furthermore, there are unique laws for taxing rental revenue from commercial and multi-property holdings. To ensure compliance with tax legislation and to optimize tax benefits, it is best to consult with a tax professional or chartered accountant.
