Investing in real estate is always considered a high-value investment. You can either finance the property for your personal use or rent it to a tenant in need. Rental income is treated like business income in many circumstances beneath the Indian Penal Code. Property owners should know the ITR on house rent and significant factors like how much rental income is tax-free. A property owner can avail of a rental income exemption from settling certain taxes on rental income. Let's look at the tax on rental income in India.
What is the Tax on Rental Income?
The received income from house property is termed "Rental Income". According to the current Tax Laws in India. This tax is calculated after the municipal tax deductions and contains any amount settled in advance in the form of a security deposit. The rental income amount is considerable under Section 24 of the Income Tax law. The government makes no difference between residential property and commercial property. Even though the parking lot attached to your space is considered a house property, if leased out, then it generates income from house property. As a standard deduction in India, 30% of your rental income is taxable under the primary income from house property. The applicant has to be the legal owner of a property for this standard deduction rate for applying the income tax filing on the house rental income in India.
How is Tax on Rental Income Calculated in India?
While income tax filing your ITR statement, use a rental income tax calculator to help you figure out the inaccurate amount you may have to pay as a tax on rental income in India. Here are the steps through which you can determine the indefinite amount you may have to settle as an income tax return on rental property:
- Encounter the Gross Annual Value (GAV) of the property: The GAV is considered zero for a self-occupied property, and as for the rented property, the collected amount of rent annually is the GAV.
- Avoid the property tax if it settles in advance. It is applicable for the deduction.
- Find out the Annual Net Value.
- As per Section 24, reduce 30% as a standard deduction.
- Reduce the home loan amount.
- Pay the tax based on the Applicable Rental Income Tax Return Rate.
The above points give you a rough idea of income tax filing on the rental pays from house property and how they are calculated.
Tax on Rental Income Based on Type of Property
Any house property tax income generated from a property on lease for someone else is considerable for rental income of house property tax and is taxable under the current laws in India. However, the property owner can make certain assumptions about the amount of house property tax as an income tax return on rental earnings from residential property in India. The security residue can also be removed if the owner intends to repay the house property tax. However, if the security residue isn't reimbursed, it will be taxable.
What are the Rental Income Tax Exemptions?
There are requirements to create special exemptions and deductions toward the amount reimbursed as rental income tax. In some instances, if a deduction of rental for a term of not more than 14 days, the owner can subtract the charge from the GAV of the property. The GAV is only considered when income tax filing out on the rent received, which means only the owner can claim a deduction around that amount if the rent is not reimbursed to the owner.
How is Deduction Tax on Rental Income Calculated in India?
Rental income from the property is a standard origin of getting income in India, and in the financial year 2021-2022, income exceeds to Rs 2,50,000 is taxable for any individual taxpayers.
Calculation of Income Tax received from House Rent.
Suppose the owner's property has been allowed for Rs. 20,000. Then, it makes the GAV of the property Rs 20,000 x 12 months = Rs. 2,40,000. So, you can see that the amount is under Rs. 2,50,000, so the owner may not be applicable to settle any tax on the income. However, assume the rent of the property was now Rs. 30,000. Then, the GAV is Rs. 30,000 x 12 months = Rs 3,60,000. Now, the owner must settle the tax on the income as it exceeds the limit of Rs 2,50,000. The owner can also avail of the benefits of income tax on their home loan under Section 24(b).
How much is the rent income Tax-free in India?
As per the current law of income tax in India, the owner can make a standard premise of 30% on the rental income accumulated via a property.
Is rental income similar to earned income?
No, Rental income is not viewed as earned income because the source of this income comes from your personal property. It is estimated as a stagnant income under the current tax laws of India.
Things to Remember
Here are some suggestions to keep in mind while paying income tax on rental income:
- Remuneration of the property taxes on time to avail of deduction.
- Avail of the home loan deduction, if applicable.
- The Joint owners get up to a 50% deduction of the annual value.
Are there any consequences for not paying taxes on rental income?
Yes, there are consequences for not paying taxes on rental income, which comes in any form of tax forgery, is punishable by Indian law, and reimbursed hefty penalties or imprisonment, or both.
Conclusion
In final words, rent is the primary source of income for many households, and it's a terrific way to finance the evergreen real estate industry or for the property. However, we must know the rate of tax on rental income in India and settle all the due taxes on rental income on time. In most events, owners need to be more knowledgeable about the deductions and exemptions they can benefit from while paying India's rental income tax. Consider this problem solved with Legal Experts from Lawgical India. Don't worry. Get all your queries resolved by our legal experts, who conquer the property domain. Just raise your inquiry, and we will reach out to you.
