Rental income on property is a favorite method of passive income in India, and it is fully taxable under the Income Tax Act. Your Income Tax Return (ITR) getting processed correctly for this income is important to stay in compliance and out of trouble. If you own one flat or many commercial units, your rental income should be reported in the proper ITR form and for which you are eligible to claim certain deductions under Section 24.
This blog details the process of filing ITR for income received on rent, available deductions, forms, and a step-by-step procedure.
Introduction
Having a property that earns rental income can provide financial security, but with the burden of reporting such income to the Income Tax Department. Be it a residential apartment, office space, or even a vacant plot let out on rent, rental income needs to be reported appropriately in the return of income. Failure to report or inaccurate reporting can invite penalties, investigation, or prosecution.
Filing ITR on rent income not only helps in maintaining tax compliance but also boosts your financial creditworthiness while seeking loans or visas. The deduction and exemption provisions under the Income Tax Act can reduce your net tax liability if correctly claimed.
Understanding Rental Income under the Income Tax Act
Rental income comes under the head “Income from House Property.” Even if the property is not used for residential purposes, it comes under this head as long as it is not used by the owner for business or professional purposes.”
You can have one of the following types of income-
- Rent from a single residential property
- Rent from multiple properties (residential or commercial)
- Income from a property jointly owned
- Rent from sub-letting (taxable under ‘Income from Other Sources’)
Which ITR Form Are You to Use?
The proper ITR form depends on your total income sources, not specifically rental income. Rental income is a factor in determining eligibility.
- ITR-1 (Sahaj) is suitable for an individual with income from salary, one house property, and other sources (such as interest), if the total income is below Rs 50 lakh.
- In case you possess more than a single property, or if you own a business property, you’ll be required to file ITR-2.
- If you’re operating a business or profession in addition to receiving rental income, you’ll need to file ITR-3.
Selecting the right form is important, as faulty filing can cause a return rejection or future questioning.
Deductions Applicable to Rental Income
- Normal Deduction (Section 24(a)) – 30% of Net Annual Value is deductible automatically.
- Interest on Home Loan (Section 24(b)) – Maximum Rs 2 lakh for self-occupied, no maximum limit for let-out.
- Municipal Taxes – Only if paid by the owner, can be deducted.
- Pre-construction Interest – Deductible in 5 equal installments from the year of completion.
How to Calculate Taxable Rental Income?
Taxable rental income is computed as follows-
Net Annual Value (NAV) = Gross Annual Value – Municipal Taxes paid by the owner
Taxable Income = NAV – Standard Deduction (30% of NAV) – Interest on Home Loan (if any)
- Gross Annual Value (GAV) – The actual rent received or receivable in a financial year.
- Municipal Taxes – Tax paid by the owner to the local municipal authority can be deducted.
- Standard Deduction – A uniform 30% of the NAV is deductible towards repairs and maintenance.
- Interest on Home Loan – The interest on the home loan, if the property has been acquired through a loan, can be claimed up to Rs 2 lakh for self-occupied and the total interest for let-out property.
Steps to File ITR for Rental Property Income
Step 1. Calculate Gross Rent Received
Start by adding up the total rent you’ve received during the financial year. If there were any months without tenants, adjust the total accordingly. Also, deduct any municipal taxes paid during the year to arrive at the Net Annual Value.
Step 2. Apply Deductions
On the Net Annual Value, apply-
- 30% standard deduction
- Interest on home loan, if applicable
- Deduct these deductions from the NAV to arrive at the Taxable Income from House Property.
Step 3. Select the Appropriate ITR Form
As mentioned above, select ITR-1 if you qualify with the basic criteria, else opt for ITR-2 or ITR-3.
Step 4. Login to the Income Tax Portal
- Visit the income tax e-filing portal, log in through your PAN and password, and click on “File Income Tax Return.”
- Select the correct assessment year, filing type (individual), and proceed.
Step 5. Fill in Income Details
In the Income Schedule section, go to “Income from House Property.” Complete the following-
- Type of property (let-out or deemed let-out)
- Gross rent received
- Taxes paid to local authorities
- Interest on borrowed capital
- Automatically calculated Net Income from House Property
Ensure that you cross-check this section thoroughly, as inaccuracies here tend to generate notices.
Step 6. Complete Other Income and Deductions
If you receive salary income, interest income, or are eligible for deductions under Section 80C (such as LIC, PPF, etc.), fill those parts as well. The system will calculate your total tax payable and taxable income.
Step 7. Check, File and Verify
Go through the entire form to check for any errors or omissions. File the return and e-verify using Aadhaar OTP, net banking, or any method made available.
After verification, your ITR filing is done.
Conclusion
It’s an easy but important task of filing ITR on rental income. By declaring the correct rent received, correct deductions under Section 24, and selecting the correct ITR form, you not only stay compliant but also keep your tax outgo as low as possible.
With growing digitization and the Income Tax Department’s improved monitoring of data, it’s more important than ever to be accurate and upfront in your tax returns. Whether you have one apartment or a portfolio of buildings, submitting your rental income correctly shields you from legal trouble and allows you to handle your finances intelligently.
References
The Income Tax Rules, 1962
The Income Tax Act of 1961 (Act No. 43 of 1961)
