How to Report Rental Income from Your Second Property
- Dipali Waghmode
- Sep 10
- 8 min read
When you own a second property and earn rental income, you are required to report it in your Income Tax Return (ITR). Properly reporting rental income can help you stay compliant with tax laws and maximise your deductions. Rental income from a second property is considered "Income from House Property" and is taxed under the head “Income from Other Sources.” Let us understand the steps required to correctly report your rental income, including determining your gross annual value, allowable deductions, and calculating your net annual value. Additionally, we'll cover the tax implications, including TDS (Tax Deducted at Source), and provide tips to avoid common mistakes.
Table of Contents
Reporting Rental Income from Your Second Property
When reporting rental income from your second property, the first step is to correctly classify the property and ensure it is treated as "Income from House Property." It’s important to note that rental income from properties such as vacation homes, business premises, or vacant land should be included in this category if they are used for rental purposes.
Step 1: Identify the Appropriate ITR Form
For reporting rental income, the most common ITR forms are ITR-2 or ITR-3, depending on your specific situation. If you are an individual or a Hindu Undivided Family (HUF) receiving income from house property but not involved in business or profession, you should file ITR-2. If you’re engaged in business or a profession, you’ll need to file ITR-3.
ITR-2 is suitable for individuals and HUFs with income from more than one house property, capital gains, or foreign income.ITR-3 applies if you have income from business or profession in addition to your rental income.
Step 2: Determine Gross Annual Value (GAV)
The Gross Annual Value (GAV) is the total annual income that a property can generate. It’s calculated as the higher of:
Actual rent received: This is the rent that you receive from your tenant in a year.
Fair Market Rent (FMR): If you’re unable to determine actual rent, you can use the fair market rent as per local standards.
GAV also includes cases where the property is vacant, and the owner still expects to receive rent. In such cases, the GAV will be considered based on the expected rent that could have been collected from the property.
Step 3: Allowable Deductions on Rental Income
Several deductions are available underSection 24of the Income Tax Act for rental income:
Standard Deduction (30%): You can claim astandard deduction of 30% on the GAV of the property, which is a flat deduction for repairs, maintenance, and other expenses related to the property. This deduction is available irrespective of the actual expenses incurred.
Interest on Home Loan: If you have a home loan on the property, the interest paid can be deducted from your rental income. This is a significant deduction available under the head "Income from House Property."
Municipal Taxes Paid: If you have paid municipal taxes during the year, these can be deducted from the GAV to arrive at the Net Annual Value (NAV).
Step 4: Calculate Net Annual Value (NAV)
Net Annual Value (NAV) is calculated by subtracting municipal taxes paid from the Gross Annual Value (GAV) and applying any applicable deductions such as the 30% standard deduction and interest on home loan.
Formula for NAV:
Net Annual Value (NAV) = Gross Annual Value (GAV) - Municipal Taxes - Deductions (30% & Interest on Home Loan)
Once NAV is calculated, it forms the basis for your taxable income under the head "Income from House Property."
Step 5: Accounting for TDS on Rental Income
Tax Deducted at Source (TDS) is applicable to rental income if the annual rent exceeds ₹2,40,000. The tenant is required to deduct TDS at 10% on the rent paid, which is then submitted to the Income Tax Department on your behalf. You must report this TDS deduction in your ITR and ensure it’s reflected in the TDS certificate (Form 16A) issued by the tenant.
If TDS has been deducted, it will show up in your Form 26AS, and you can claim the credit for it while filing your return.
Step 6: Reporting Rental Income in ITR-2
Once you have calculated the Net Annual Value (NAV) and applied the relevant deductions, it’s time to report the rental income on the ITR form. In ITR-2, there is a specific section for "Income from House Property." Here’s how to fill it:
Report the Gross Annual Value (GAV) of the property.
Subtract municipal taxes paid to arrive at the Net Annual Value (NAV).
Apply the standard deduction and other allowable deductions (e.g., home loan interest) in the respective sections.
Report any TDS deducted by the tenant in the TDS section.
Make sure all figures are correct to avoid discrepancies during processing.
Step 7: Special Notes on Reporting Rental Income
Multiple Properties: If you own multiple properties and earn rental income, report each property separately in the respective sections of the ITR form. You can claim deductions on each property, subject to the limits.
Vacant Property: Even if the property is vacant, it’s treated as a deemed rental income. The GAV will be considered based on expected rent, and deductions will still apply.
Self-Occupied Property: If the property is self-occupied and generating no rental income, it is exempt from reporting rental income. However, you must still account for any interest on home loan deductions under the "Income from House Property" section.
Compliance Tips & Mistakes to Avoid
Keep Accurate Records: Maintain proper records of all rent payments, interest on home loans, and municipal tax receipts. This will help in ensuring accurate reporting and reducing the chances of errors.
Don’t Miss the TDS Credit: Ensure that TDS deducted on rental income is accurately reported in your ITR. Failure to do so may result in a mismatch and delays in processing your return or refund.
Claim All Deductions: Maximize your deductions by claiming the full 30% standard deduction, home loan interest, and municipal taxes paid.
Conclusion
Reporting rental income from your second property requires a systematic approach to ensure that all deductions are claimed, and the correct income is reported. By following the steps outlined above—starting with identifying the right ITR form, calculating Gross Annual Value, and applying deductions—you can ensure that your rental income is properly accounted for. Be mindful of the TDS deductions, report all income accurately, and avoid common filing mistakes to make the process smooth and compliant. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1: Can I claim a deduction for repairs and maintenance of my rented property? Yes, you can claim a standard deduction of 30% on the Net Annual Value (NAV) for repairs and maintenance of a rented property. This deduction is available irrespective of the actual repair or maintenance costs incurred. It helps to reduce your taxable rental income, but keep in mind that this deduction applies only to repairs and not to improvements or capital expenses.
Q2: What is the difference between GAV and NAV? GAV (Gross Annual Value) is the total rental income you receive from your property or the potential rental income you could earn, including any rent-free periods or vacant months. NAV (Net Annual Value), however, is the GAV after deducting municipal taxes paid and any other permissible deductions such as repairs or maintenance. The NAV is the amount you use for tax calculation, which forms the basis for further deductions.
Q3: Do I need to report rental income if the property is vacant? Yes, even if the property is vacant, you must report rental income as deemed income. The Income Tax Act assumes that you are earning rental income from the property, and you must report the Gross Annual Value (GAV) based on the expected rent, even if the property was not occupied or rented out. However, you can still claim deductions like property tax and 30% repair allowance on the NAV.
Q4: How do I account for TDS on my rental income? Tax Deducted at Source (TDS) is applicable on rental income if the total annual rent paid by the tenant exceeds ₹2,40,000. The tenant is responsible for deducting TDS at 10% and submitting the payment to the government. You must ensure that the TDS is reflected in your Form 16A and Form 26AS. When filing your ITR, the TDS amount will be deducted from your total tax liability, and you will be refunded the amount if there is an excess.
Q5: What happens if my tenant doesn’t deduct TDS? If your tenant fails to deduct TDS on the rental income, you are still liable to pay tax on the full rental income. You will need to account for this amount when filing your ITR. You may also be required to pay tax on the income that should have had TDS deducted. If your tenant doesn’t deduct TDS, you may need to reach out to them for a correction or adjust for the same in your tax filings.
Q6: Can I report rental income in ITR-1? No, you cannot report rental income in ITR-1. Rental income must be reported in ITR-2 or ITR-3, depending on the complexity of your tax situation. ITR-1 is for salaried individuals with income from one house property and does not allow for the reporting of rental income from multiple properties or other sources of income like capital gains or business income.
Q7: What deductions can I claim on rental income? You can claim a 30% standard deduction on the Net Annual Value (NAV) of the property, which covers repairs, maintenance, and wear and tear. Additionally, you can deduct municipal taxes paid, and the interest on home loans underSection 24(b) if the property is mortgaged. These deductions help reduce your taxable rental income, lowering your overall tax liability.
Q8: Is rental income taxed differently in the new tax regime? Rental income is taxed under the same income tax slabs in both the old and new tax regimes. However, under the new tax regime, you cannot claim deductions like home loan interest and other exemptions. The new regime simplifies taxation by removing many deductions, including those on rental income, but you would benefit from lower tax slabs.
Q9: How do I handle rental income from multiple properties? If you own multiple rental properties, you need to report the rental income separately for each property in your ITR-2. Each property’s income will be calculated based on the Gross Annual Value (GAV), and deductions like municipal taxes and the 30% standard deduction will be applied individually for each property. You must ensure to include all rental income and expenses to accurately file your tax return.
Q10: Can I file an ITR for rental income if I haven’t received the rent? Yes, even if you haven't received the rent, you are still required to report rental income based on the Gross Annual Value (GAV) of the property. This is treated as deemed rental income under the Income Tax Act. If rent is unpaid, you cannot claim it as received income, but you must still report the expected rental income for the period in question. You can later deduct any unpaid rent as an adjustment in future filings, if applicable.
Q11: Can I claim deductions on the repairs and maintenance of my rental property? Yes, you can claim deductions on repairs and maintenance under the 30% standard deduction for repairs and maintenance of the Net Annual Value (NAV) of the property. This deduction applies regardless of the actual costs incurred on repairs. However, capital improvements such as renovation or structural changes cannot be deducted under this provision.
Q12: Can I claim rental income from a property rented out to a family member? Yes, you can claim rental income from a property rented out to a family member. However, the rental income must be at a fair market value, and the property must be genuinely rented out. If the property is rented at a nominal rate or for free, the Income Tax Department may question the validity of such rental income, and it may not be allowed as a legitimate expense or deduction.
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