Filing ITR for Rental Income: Things You Should Know
- PRITI SIRDESHMUKH
- Oct 4
- 8 min read
Filing ITR for rental income in India requires careful attention to compliance, form selection, and accurate reporting. Income from house property, deductions under Sections 24 and 80C, and TDS obligations must be handled correctly to avoid scrutiny. Understanding these key aspects ensures timely filing, smooth refunds, and lawful compliance with the Income Tax Act. Platforms like TaxBuddy guide taxpayers through this process efficiently, reducing the risk of errors and making filing seamless.
Rental income must be reported under “Income from House Property,” accounting for all rent received, applicable municipal taxes, standard deductions, and home loan interest claims. Proper documentation, correct ITR form selection, and adherence to TDS rules are crucial for accurate tax filing.
Table of Contents
Understanding How Rental Income is Taxed in India
Rental income is generally calculated as the annual value of the property, which is either the actual rent received or the reasonable expected rent (known as “gross annual value”) based on municipal valuation, whichever is higher. Tax is levied on this income after allowing certain deductions, such as municipal taxes paid, standard deduction of 30% for repairs and maintenance, and interest on home loans (if applicable). Whether the property is self-occupied or let out also affects taxability, as self-occupied properties have specific exemptions, while rented properties are fully taxable after deductions.
Choosing the Correct ITR Form for Rental Income
Choosing the correct ITR form for reporting rental income is a critical step in ensuring accurate tax filing and avoiding delays in processing or refunds. The type of form you need depends on the nature and amount of income, as well as the complexity of your financial situation.
ITR 1, also known as Sahaj, is designed for individuals whose total income includes salary, one house property, and other sources such as interest income, provided the total income does not exceed ₹50 lakh. This form is suitable if you earn rental income from a single property and do not have business or professional income. Using ITR 1 in such cases simplifies the filing process and reduces the chance of errors.
ITR 2 is more comprehensive and is applicable for individuals and Hindu Undivided Families (HUFs) who have income from multiple sources, including rental income from more than one property, foreign assets, or other capital gains. This form allows for detailed reporting of complex income streams and ensures compliance with all tax provisions.
ITR 3 is meant for individuals or HUFs who have income from business or professional activities along with rental income. It accommodates both profit-and-loss reporting and income from property, making it suitable for taxpayers managing multiple streams of income.
Selecting the correct ITR form according to your income profile not only ensures that your return is processed smoothly but also minimizes the risk of discrepancies, errors, or delays in receiving any eligible refunds. Proper form selection is particularly important when rental income is combined with other complex sources, as it allows for accurate reporting, proper TDS credit matching, and timely compliance with tax regulations.
How to Calculate Rental Income and Claim Deductions
Calculating rental income for tax purposes begins with determining the Gross Annual Value (GAV) of the property. The Gross Annual Value is essentially the higher of the actual rent received during the year or the reasonable expected rent, known as the fair rental value of the property. This ensures that rental income is calculated on a fair basis, even if the property is rented below market rates or partially vacant during the year.
Once the Gross Annual Value is established, the next step is to deduct municipal taxes paid to local authorities. Municipal taxes include property taxes, water charges, or any local levies directly related to the ownership of the property. Only the taxes actually paid during the financial year can be deducted from the GAV.
After deducting municipal taxes, the remaining amount is referred to as the Net Annual Value (NAV). The NAV reflects the true rental income after adjusting for property-related taxes and forms the basis for further deductions.
From the NAV, taxpayers can claim a standard deduction of 30%, which accounts for maintenance, repairs, and other expenses related to the property. This deduction is allowed irrespective of the actual expenditure incurred, simplifying the calculation process.
If the property is financed through a home loan, taxpayers are also allowed to deduct the interest paid on the loan. This deduction applies to interest paid for acquiring, constructing, or repairing the property. It is important to note that there are certain limits on interest deduction depending on whether the property is self-occupied or let out, as prescribed under the Income Tax Act.
After applying all these deductions, municipal taxes, standard deduction, and home loan interest, the resulting figure is the taxable rental income. This income is then added to other sources of income, such as salary, business income, or capital gains, to determine the total taxable income for the financial year. Proper calculation ensures accurate tax liability and helps taxpayers optimize deductions while complying with tax regulations.
TDS on Rental Income: Responsibilities and Compliance
Tenants are required to deduct TDS at 10% under Section 194-IB if the monthly rent exceeds ₹50,000. Landlords must ensure proper credit of TDS in their PAN account. Non-compliance can attract penalties and interest. Filing returns on time with TDS details ensures accurate reporting and avoids mismatch notices from the Income Tax Department.
Reporting Multiple or Foreign Properties
If a taxpayer owns multiple properties, rental income from each property must be reported separately. For properties held abroad, global rental income is taxable in India for residents, with the option to claim relief under the Double Taxation Avoidance Agreement (DTAA) to prevent double taxation. Accurate reporting is essential to ensure full compliance and proper tax liability calculation.
Common Mistakes to Avoid While Filing ITR for Rental Income
Filing Income Tax Returns for rental income requires careful attention to detail, as even small errors can lead to notices, processing delays, or incorrect tax calculations. One common mistake is reporting only one property when multiple properties are generating rental income. Taxpayers often overlook income from secondary properties, leading to incomplete reporting and potential scrutiny from the Income Tax Department. It is essential to report all properties from which rental income is earned, along with the corresponding municipal taxes and allowable deductions.
Another frequent error is forgetting to deduct municipal taxes before claiming the standard deduction of 30 percent under Section 24. Many taxpayers calculate the standard deduction on the total rent received without considering municipal taxes paid, which can result in an overstated deduction and tax mismatch. Similarly, failing to correctly include TDS details is another area of concern. If the tenant has deducted TDS on rent payments, these credits must be reported accurately; otherwise, it can delay refund processing or trigger notices.
Misreporting foreign rental income is a significant issue for taxpayers who earn rent from properties abroad. Such income must be converted into Indian Rupees using the prescribed exchange rate for the relevant financial year and reported correctly in the return. Incorrect conversion or omission may lead to errors in tax calculation.
Finally, choosing the wrong ITR form is a common but avoidable mistake. Filing rental income in an incorrect form can cause processing delays, notices for correction, or even the need to file a revised return. Understanding which ITR form applies based on the nature of income and taxpayer category ensures smooth processing.
Careful attention to these areas—reporting all properties, deducting municipal taxes correctly, including TDS details, accurately reporting foreign rental income, and using the correct ITR form—ensures error-free filing, timely processing, and smooth refunds.
How TaxBuddy Simplifies Rental Income Filing
TaxBuddy automates the entire rental income filing process, from calculating net annual value to claiming deductions for municipal taxes, standard deductions, and home loan interest. The platform allows users to upload TDS details, verify rental income across multiple properties, and even handle foreign income reporting. With step-by-step guidance and expert-assisted plans, TaxBuddy ensures accurate ITR filing, reduces the risk of notices, and provides a seamless experience for both self-filers and those seeking professional support.
Conclusion
Proper reporting of rental income is critical to comply with the Income Tax Act, avoid penalties, and claim eligible deductions. By understanding the tax implications, selecting the correct ITR form, and carefully calculating deductions, taxpayers can optimize their rental income reporting. For anyone seeking a simplified and error-free experience, it is highly recommended to use the TaxBuddy mobile app for seamless rental income filing, accurate deductions, and expert-assisted support when needed.
FAQs
Q1. Which ITR form should I use if I earn rental income from multiple properties?
For rental income from more than one property, ITR 2is the appropriate form. This form allows you to report income from multiple house properties, along with salary, capital gains, and other sources of income. ITR 1 cannot be used if you have rental income from more than one property. Using the correct form ensures accurate tax computation and reduces the chances of errors or notices.
Q2. Can I claim a standard deduction on rental income from multiple properties?
Yes, a standard deduction of 30% of the net annual value (NAV) is allowed for each rented property. This deduction accounts for maintenance and repairs and is applicable irrespective of the actual expenditure incurred. It is calculated separately for each property to determine the taxable rental income.
Q3. Is TDS applicable on rental income from residential property?
TDS under Section 194-IB is applicable if the rent exceeds ₹50,000 per month. The tenant is responsible for deducting and depositing TDS with the Income Tax Department. This TDS can later be claimed as a credit while filing your ITR.
Q4. How is self-occupied property treated for tax purposes?
For a self-occupied property, the annual rental income is considered nil, but you can claim home loan interest deduction up to ₹2 lakh per year underSection 24(b) for a self-occupied property. The principal repayment qualifies for deduction underSection 80C, but only within the overall ₹1.5 lakh limit.
Q5. How do I report rental income from foreign properties?
Rental income from a foreign property must be reported under “Income from House Property” in ITR 2. You need to convert the income into Indian Rupees using the prevailing exchange rate. Additionally, you may claim foreign taxes paid as a credit to avoid double taxation under Section 90 or Section 91.
Q6. Can I claim home loan interest on rented properties?
Yes, for rented properties, the interest on home loans is fully deductible under Section 24(b) with no upper limit. The standard deduction of 30% on NAV also applies. This reduces your taxable rental income and overall tax liability.
Q7. What happens if I miss reporting TDS on rental income?
Failure to report TDS can lead to a mismatch in Form 26AS, resulting in notices from the Income Tax Department. It is important to reconcile TDS with your actual income. TaxBuddy helps cross-check TDS credits and ensures all entries are correctly reported in your ITR, avoiding potential penalties.
Q8. Does TaxBuddy support filing rental income from multiple properties?
Yes, TaxBuddy allows seamless filing for multiple rental properties under ITR 2. It automatically calculates NAV, standard deductions, and home loan interest deductions, ensuring accurate tax computation while providing options for both self-filing and expert-assisted filing.
Q9. How can I calculate the net annual value (NAV) of my property?
NAV is calculated as gross annual rent minus municipal taxes paid. TaxBuddy simplifies this by allowing you to enter rental details, municipal tax payments, and other relevant expenses, and it calculates the NAV for each property to determine taxable income accurately.
Q10. Are municipal taxes fully deductible?
Yes, municipal taxes paid by the owner during the financial year are fully deductible from the gross annual rental income. However, taxes not paid during the year or borne by tenants are not eligible for deduction.
Q11. Can TaxBuddy file ITR for rental income under ITR 2?
Absolutely. TaxBuddy supports ITR 2 filing, including income from multiple house properties, salary, capital gains, and other income sources. The platform ensures that all deductions, exemptions, and TDS credits are applied accurately, providing a seamless filing experience.
Q12. How does rental income affect my overall tax liability?
Rental income is added to your total taxable income, increasing your overall tax liability based on your income slab. However, deductions such as 30% standard deduction, municipal taxes, and home loan interest reduce taxable rental income. Using platforms like TaxBuddy ensures these deductions are applied correctly, minimizing your tax liability and avoiding errors.
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