How to Report Rental Income and Claim Deductions in ITR: Detailed Guide for Indian Taxpayers
- PRITI SIRDESHMUKH
- 4 days ago
- 9 min read
Rental income in India is taxable under the head “Income from House Property” as defined by the Income Tax Act, 1961. To ensure compliance and minimize tax liability, it’s crucial to report it accurately in your Income Tax Return (ITR). Misreporting or ignoring this income can invite penalties and scrutiny. With recent updates under Budget 2025, taxpayers can claim deductions for municipal taxes, standard deductions, and home loan interest to optimize taxes efficiently. Platforms like TaxBuddy make this process seamless through AI-driven accuracy and expert guidance.
Table of Contents
Understanding Taxability of Rental Income in India
Rental income in India is taxable under the head “Income from House Property” as per the Income Tax Act, 1961. This applies to both residential and commercial properties that are rented or deemed to be rented. The tax is calculated based on the property’s Gross Annual Value (GAV), which represents the higher of actual rent received or the reasonable expected rent from the property. Properties are categorized as self-occupied, let-out, or deemed-to-be-let-out. For self-occupied properties, no rental income is considered, while for let-out and deemed-let-out properties, the actual or notional rent must be reported. Understanding these classifications is crucial, as each type has different tax implications and allowable deductions.
How to Report Rental Income in ITR
While filing your Income Tax Return (ITR), rental income should be reported under the head “Income from House Property.” The choice of the ITR form depends on the number of properties and other income sources.
Use ITR-1 (Sahaj) if you have income from one property and salary or other simple sources.
Use ITR-2 if you have income from multiple properties or additional income sources such as capital gains. To report rental income accurately, calculate the Gross Annual Value, deduct municipal taxes, and apply the standard deduction. Keep rent receipts, rental agreements, and municipal tax bills ready to support your declaration.
Deductions Allowed on Rental Income Under Income Tax Act
Taxpayers can claim several deductions to lower taxable rental income:
Municipal Taxes: Taxes paid to the local authority during the financial year are deductible from the Gross Annual Value.
Standard Deduction: A flat 30% of the Net Annual Value (NAV = GAV – Municipal Taxes) is allowed as a deduction for repairs and maintenance, regardless of actual expenses.
Interest on Home Loan (Section 24(b)): Interest on loans taken for purchasing, constructing, or repairing the property can be claimed up to ₹2 lakh per year for let-out properties.
Section 80C Benefits: Principal repayment, stamp duty, and registration charges are eligible under Section 80C, subject to prescribed limits.
Is Rental Income Deduction Allowed in the New Tax Regime?
Under the new tax regime, most deductions and exemptions are restricted. The 30% standard deduction on rental income under Section 24(a) continues to be available; however, the interest deduction under Section 24(b) and 80C benefits are not allowed. Taxpayers who have significant deductions may benefit more from the old regime, while those with fewer expenses may find the new regime simpler and more beneficial due to lower slab rates. A comparative calculation before filing helps determine which regime minimizes the overall tax burden.
TDS on Rental Payments – Section 194IB Explained
If monthly rent paid by a tenant exceeds ₹50,000, tax must be deducted at source (TDS) at 5% under Section 194IB. This applies even if the tenant is an individual or HUF not otherwise liable to deduct TDS. The tenant must deposit the deducted TDS with the government using Form 26QC within 30 days of deduction and provide the landlord with Form 16A as proof. Landlords should report this TDS while filing ITR to claim credit against their total tax liability.
Common Mistakes While Reporting Rental Income
Many taxpayers make unintentional mistakes that can attract scrutiny notices. Common errors include:
Reporting lower rental income than the actual amount received.
Failing to deduct municipal taxes before claiming the 30% standard deduction.
Claiming ineligible deductions under the new tax regime.
Incorrectly classifying a self-occupied property as let-out or vice versa. Avoiding these mistakes ensures compliance and reduces the chances of receiving income tax notices.
How to File ITR with Rental Income Using TaxBuddy
TaxBuddy simplifies ITR filing for rental income through an intuitive, step-by-step process. The platform auto-calculates taxable income after considering deductions for municipal taxes, standard deduction, and loan interest. Users can upload Form 16, rent receipts, and tax payment proofs to let the system auto-fill details accurately. TaxBuddy’s AI-driven interface also validates entries to minimize errors. Expert-assisted plans are available for complex cases, ensuring a seamless, compliant filing experience.
How to Handle Rental Income from Foreign Property
Indian residents earning rental income from property located abroad must report it under “Income from House Property” in India. Such income is taxable in India but may also be taxed in the foreign country. To avoid double taxation, residents can claim relief under the Double Taxation Avoidance Agreement (DTAA). All foreign rental receipts, taxes paid, and conversion rates must be documented carefully when declaring this income in the ITR.
Penalties for Non-Disclosure or Misreporting of Rental Income
Failure to report rental income or misreporting property details can lead to penalties and interest. The Income Tax Department may impose penalties under Section 270A for underreporting income and Section 271AAC for misreporting. Taxpayers who discover omissions after filing can file a revised return under Section 139(5) before the end of the assessment year to correct the mistake and avoid penalties.
Practical Example – Reporting and Claiming Deductions
Consider a taxpayer earning ₹4,00,000 annual rent with ₹20,000 municipal taxes paid and ₹1,50,000 interest on a home loan.
Gross Annual Value (GAV): ₹4,00,000
Less: Municipal Taxes: ₹20,000
Net Annual Value (NAV): ₹3,80,000
Less: Standard Deduction (30%): ₹1,14,000
Less: Interest on Loan (Section 24b): ₹1,50,000 Taxable Income: ₹1,16,000 This example highlights how claiming legitimate deductions can significantly reduce taxable rental income.
Key Takeaways for Homeowners and Tenants
Always distinguish between self-occupied and let-out properties while reporting.
Claim municipal taxes, standard deduction, and loan interest only with valid proof.
Ensure TDS compliance for rental payments above ₹50,000 per month.
Use reliable tax filing platforms like TaxBuddy to avoid errors and maximize benefits.
Conclusion
Accurate reporting of rental income ensures compliance and allows taxpayers to make full use of available deductions. With AI-driven accuracy, validation checks, and expert support, TaxBuddy simplifies every step of the process. For anyone looking for assistance in tax filing, Iit is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy offers flexibility to cater to every taxpayer’s needs through both self-filing and expert-assisted plans. The self-filing option is ideal for individuals who are confident in handling their tax information independently. It provides step-by-step guidance, pre-filled data inputs, and real-time error checks to ensure accuracy. For those dealing with more complex cases—such as multiple income sources, capital gains, rental income from several properties, or business income—the expert-assisted plan is recommended. Under this plan, professionals review and file the return on behalf of the taxpayer, ensuring 100% compliance and peace of mind.
Q2. Which is the best site to file ITR?
The official government portal, incometax.gov.in, remains the statutory platform for filing income tax returns in India. However, private e-filing platforms like TaxBuddy have gained immense popularity for their simplicity, AI-driven automation, and expert support. TaxBuddy offers an intuitive interface that minimizes manual data entry, automatically detects errors, and provides suggestions for deductions that taxpayers might miss. It’s especially preferred by individuals looking for a guided, error-free, and quick filing experience, making it one of the most reliable platforms for ITR filing in 2025.
Q3. Where to file an income tax return?
Taxpayers can file their ITR through two primary options. The first is the official Income Tax e-filing portal (incometax.gov.in), which allows free filing directly with the government. The second is through registered e-filing intermediaries such as TaxBuddy. These platforms simplify the process with guided data inputs, pre-validated PAN and TDS details, AI-powered error detection, and professional review options. Using such platforms ensures a smoother experience and significantly reduces the chances of receiving a notice due to incorrect reporting.
Q4. Which ITR form should be used if rental income is from multiple properties?
The choice of ITR form depends on the number of properties and the taxpayer’s overall income structure. If rental income is received from only one property, taxpayers can file using ITR-1 (Sahaj), provided there is no business income or capital gains. However, if income is earned from more than one rented or deemed-let-out property, or if the taxpayer has additional sources such as capital gains or foreign income, ITR-2 must be used. Selecting the correct form ensures proper disclosure of income and avoids potential rejection of the return during processing.
Q5. Can the 30% standard deduction be claimed without expense proof?
Yes. Under Section 24(a) of the Income Tax Act, a flat 30% standard deduction on the Net Annual Value (NAV) of the property is allowed for repairs and maintenance. This benefit is available irrespective of the actual expenses incurred or the presence of any supporting bills. The deduction is granted automatically once rental income is declared under the “Income from House Property” head. It simplifies compliance and eliminates the need for detailed expense documentation, making it one of the most taxpayer-friendly provisions in property taxation.
Q6. How is taxable rental income calculated?
The calculation of taxable rental income follows a structured method under the Income Tax Act:
Determine the Gross Annual Value (GAV) – the higher of actual rent received or the property’s expected rent.
Deduct Municipal Taxes paid during the year to arrive at the Net Annual Value (NAV).
Apply a 30% standard deduction on the NAV for repairs and maintenance.
Deduct interest on home loan (if applicable) under Section 24(b). The remaining balance is the taxable rental income, which is then added to the taxpayer’s total income and taxed as per the applicable slab rate.
Q7. Are deductions under Section 24(b) allowed in the new tax regime?
No, deductions for home loan interest under Section 24(b) are not available in the new tax regime introduced under Section 115BAC. Taxpayers who wish to claim this deduction must opt for the old tax regime, which continues to allow benefits like interest on home loan, standard deduction, and 80C-related deductions. Under the new regime, however, the focus is on lower slab rates and reduced exemptions. Taxpayers should compare both regimes before filing to determine which results in a lower overall tax liability.
Q8. What documents are required while filing ITR for rental income?
To ensure accurate reporting and avoid discrepancies, taxpayers should keep the following documents handy:
Rental Agreement between the landlord and tenant.
Rent Receipts as proof of rent received or due.
Municipal Tax Payment Receipts for deductions.
Home Loan Interest Certificate from the lender if claiming interest under Section 24(b).
Form 16A in case TDS was deducted on rental payments.
Property Ownership Proof like sale deed or possession letter. Maintaining proper documentation ensures smooth processing and easy validation in case of scrutiny.
Q9. How does TDS apply on rent payments under Section 194IB?
Under Section 194IB, tenants (individuals or HUFs) paying rent exceeding ₹50,000 per month are required to deduct TDS at 5% on the total rent paid during the financial year. This provision applies even if the tenant is not liable for tax audit. The tenant must deposit this TDS using Form 26QC within 30 days from the end of the month in which the deduction was made. After payment, the tenant should issue Form 16A to the landlord as proof. The landlord can then claim the deducted TDS as a credit while filing their ITR.
Q10. Can foreign rental income be declared in Indian ITR?
Yes, residents of India are required to report rental income earned from properties located abroad in their Indian tax return under the head “Income from House Property.” This income is taxable in India as per domestic law, but relief can be claimed under the Double Taxation Avoidance Agreement (DTAA) if tax has already been paid in the foreign country. Taxpayers must disclose such income in the appropriate schedule of their ITR and report the foreign taxes paid, exchange rate used, and location of the property. Proper reporting ensures compliance and avoids double taxation.
Q11. What happens if rental income is not disclosed?
Failure to disclose rental income or deliberate misreporting can attract serious consequences under the Income Tax Act. The department can levy penalties under Section 270A for under-reporting (up to 50% of tax due) and Section 271AAC for misreporting (up to 200% of tax due). Additionally, interest under Section 234A/B/C may apply for delayed payment. In certain cases, non-disclosure can also trigger scrutiny or reassessment notices. If an omission is realized after filing, taxpayers can correct it by submitting a revised return under Section 139(5) before the end of the assessment year.
Q12. How can TaxBuddy help with filing rental income ITR?
TaxBuddy provides a comprehensive, technology-driven solution for reporting and optimizing rental income in ITR. Its AI-based system automatically identifies the correct income head, applies deductions for municipal taxes and interest, and performs real-time validation checks. TaxBuddy’s expert-assisted plan ensures professionals review each return to eliminate potential errors and maximize deductions. Users can simply upload documents such as Form 16, rent receipts, or interest certificates, and the platform generates an accurate return ready for filing. By combining automation with expert review, TaxBuddy makes tax filing accurate, fast, and stress-free.
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