Under the income tax laws in India, a taxpayer’s rental income is a part of their total gross income. Therefore, those earning an income through a house property are liable to report this to the income tax department at the time of filing income tax returns. Read on to learn more about how to include rental income while filing IT returns.
Which ITR form is applicable to report rental income?
There are two types of ITR forms you can fill to declare rental income depending on various conditions.
ITR-1
The taxpayer must fill out ITR-1 and include rental income details if they meet the following conditions:
- If you own only one house property
- Your total income during the year does not exceed Rs 50 lakh
- You don’t hold directorship in any company
SAHAJ ITR-1
ITR-2
ITR 2 can be filed by individuals or HUFs earning rent from more than one house property. In case of multiple properties, any two of the house properties will be treated as self-occupied and the remaining properties will be treated as deemed rented and will be taxed accordingly.
Any individual or HUF having income from business or profession cannot file ITR-2. Individuals eligible to fill out ITR-1 (Sahaj), too, are not eligible to file ITR-2.
What details are needed to fill out ITR-1?
The taxpayer should provide the following details in ITR-1 to report their rental income.
Personal details
- Name
- Gender
- Date of birth
- PAN
- Father’s name
- Postal address
- Mobile number
- Email address
For income from salaries
Details of other income
- Interest income
- Dividend
- Any other income not categorised as business income, professional income or capital gains
Pre-requisite to file rental income in ITR
The filing of ITR-1 is available for registered users on the e-filing portal. This service enables individual taxpayers to file ITR-1, either online through the e-filing portal or the offline Excel utility.
You need to have the following to file ITR-1 online:
- e-filing portal user ID
- Password
- Active PAN
- PAN-Aadhaar linked
- A pre-validated bank account
- Validated mobile number linked with Aadhaar/e-filing portal/your bank/NSDL/CDSL (for e-verification)
How to file ITR-1 with rental income?
ITR-1 has five pre-filed sections:
- Personal information
- Gross total income
- Total deductions
- Tax paid
- Total tax liability
You need to validate/edit these. You are required to review your tax computation. After that:
- Access ITR-1 through e-filing portal
- Enter personal details
- Fill in income details along with Form 16 or manually enter employer details and taxable salary
- Find the taxable income information in your Form 16 and enter it in the appropriate section
- Provide details of TDS on salary in the relevant section
- Enter any additional income from sources, like gifts, fixed deposits or bank accounts, in the ‘Other Income’
How is rental income of a house property calculated?
Under income tax laws in India, a property owner is liable to pay taxes on his rental income and on his property’s potential to generate income. Therefore, a taxpayer must know about the different ways in which the property can be treated for income tax calculation purposes.
Rental income from a self-occupied property
India’s income tax law defines self-occupied properties as those occupied by the taxpayer for residential purposes. This excludes properties being used for commercial purposes. Up to the assessment year 2019-20, if a taxpayer occupied more than one property, only one could be considered a self-occupied property. The remaining properties were considered let-out or deemed let-out. However, from the assessment year 2020-21, a taxpayer can claim two properties as self-occupied, subject to certain conditions.
Rental income from a let-out property
The term let-out property is a leased or rented property. Let-out properties could be residential, such as apartments or houses, or commercial, like office or retail space. Before imposing a tax on the income earned by letting out a property, it is balanced against the costs of owning and maintaining the property, such as home loans, property taxes and repairs.
Rental income from a deemed let-out property
A property which is neither self-occupied nor let out is a deemed let-out property. A notional value is attached to the property to calculate tax from house property in such cases. Income from deemed let-out property is computed in the same manner as for let-out property.
Tax benefits on rental income
Property owners can take advantage of several tax benefits to reduce their taxable rental income:
- Standard deduction (30%): A fixed deduction of 30% is applied to the net annual value of the property, covering maintenance and repair costs, regardless of actual expenses incurred.
- Home loan interest deduction (Section 24(b)): If you have taken a home loan for the rented property, the entire interest paid can be claimed as a deduction without any upper limit.
- Municipal taxes: Property owners can deduct municipal and property taxes from their gross rental income, provided they have made the payments themselves.
- Vacancy loss: If the rental property remains unoccupied for a portion of the year, the resulting income loss can be deducted, lowering taxable rental earnings.
- Pre-construction interest: Interest paid on a home loan during the construction phase is eligible for deduction, distributed over five equal installments starting from the year the property is completed.
Housing.com POV
Including rental income while filing income tax returns is essential for compliance with Indian tax laws. Understanding the applicable ITR form, whether ITR-1 or ITR-2, ensures accurate reporting based on the number of properties owned. Additionally, calculating rental income correctly—whether from self-occupied, let-out, or deemed let-out properties—helps in optimizing tax liability. Property owners can also benefit from various deductions, such as the standard deduction, home loan interest, and municipal taxes, to reduce taxable income. Filing ITR-1 online through the e-filing portal is a straightforward process, provided all necessary documents and details are in place. Proper tax planning and accurate reporting can help maximize tax benefits while ensuring compliance with the law.Â
FAQs
What is a house property?
Income arising from a property consisting of a building or land is income from a house property. This means that a building and the land adjoining it are considered house property for tax calculation under the tax law.
Under what head is rental income taxed?
Rental income is taxed under the head ‘income from house property’ under India’s income tax law.
How is rental income taxed?
Rental income is included in the total gross income of a taxpayer. The applicable tax rate is applied to this entire income.
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