Owning rental properties can be a source of steady income, but it also comes with tax obligations. In India, landlords need to report their rental income on their Income Tax Return (ITR). This guide explains everything you need to know about ITR for rental income, from the different property categories to the deductions you can claim.
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What is ITR for Rental Income?
ITR for rental income is the tax levied on income generated from renting out real estate properties, similar to houses, apartments, marketable buildings, and land. Landlords need to understand the tax implications of their rental income to ensure compliance with tax laws and to optimize their fiscal situation.
How to fill out form ITR for Rental Income?
Follow these procedures to submit an Income Tax Return-1 form for an individual receiving rental income.
- Enter particular information and give details like first name, middle name, last name, gender, date of birth, and Permanent Account Number (PAN). This information are crucial to file ITR for rental income.
- Click on ‘Income Sources’ and select the applicable source of income among salary, other income, house property, capital gain, or business and profession.
- Complete income information based on selected income sources.
- Provide Form 16 electronically or input employer details and taxable salary manually.
- Locate taxable income. Find the taxable income information in your Form 16 and enter it in the applicable section.
- Enter salary Tax Deducted at Source (TDS) and give details of TDS on salary in the applicable section.
- Include other incomes. Enter any fresh income from other sources; Like an overview of the details needed for different types of house properties when filing an ITR for rental income.
These details are necessary for directly reporting the income and expenses related to house properties in your income tax return.
What are the categories of Residential Property for taxation?
In India, residential properties fall under four main categories for income tax purposes:
- Self-Occupied Property: This is your main residence where you live.
- Let-out Property: This is a property you rent out to tenants.
- Co-ownership Property: You jointly own this property with others (family, etc.).
- Deemed to be Let-out Property: If you own more than two residential properties and only occupy one.
What is Self-Occupied Property?
Self-occupied property is a primary residence where you live. You cannot claim any rental income on it, but depending on the property type, there might be tax benefits on the home loan interest you pay.
Interest on housing loan paid/ payable
- This pertains to the interest paid or due on a housing loan for a self-occupied property.
- A significant deduction against taxable income. Interest is paid throughout the pre-construction phase.
- You could have had to pay interest on the home loan throughout the time the property was being built.
- Over the following years, this pre-construction phase interest is deductible.
- The home’s address (enter the full address of the self-occupied property, taking into account the PIN code, city, street name, and house number).
What is Co-ownership Property?
You jointly own this property with others, like family members. Income tax implications depend on your share of ownership and whether it’s self-occupied or rented out.
- Name, PAN, and Percentage of Share of Co-owners.
- If the property is co-owned, provide the names of the co-owners, their PAN, and the percentage of ownership held by each co-owner.
- This information is needed to allocate income and charges accurately among the co-owners.
What is Let-out Property?
This is a property you rent out to tenants. You can claim the rental income as taxable income and deduct certain expenses related to maintaining the property.
- Annual Rent received/ receivable:
- Enter the total periodic rental income received or receivable from the let-out property.
- This includes the rent paid by tenants for enwrapping the property.
- House Tax or Municipal Tax paid specifies the amount of house tax or external tax paid for the let-out property during the fiscal year.
- This is a permissible expenditure that can be deducted from the rental income.
- Tenant’s name and PAN:
- Give the tenant(s) who have rented the property their name and PAN.
- For taxation purposes, this aids in proving the tenant’s identification.
- Interest Repaid or Owed on Home Loan Indicate how much interest has been paid or is still owed on the home loan taken out for the rental property.
- It is possible to deduct this interest from rental revenue. Interest during the Pre-construction Phase Indicate the amount of interest you paid on the house loan during the pre-construction phase.
- Analogous to self-occupied property:
- This interest can be claimed as a deduction over posterior years.
- Property’s address and any co-owner information:
- Supply the full address of the rented property as well as the names and PANs of any co-owners.
What is deemed to be Let-out Property?
If you own more than two residential properties and only occupy one, the remaining ones are considered “deemed to be let out” by the tax department. Even if they’re vacant, you’ll need to pay tax on a notional rental income.
- Estimated Annual Rent Receivable: Specify the estimated periodic rental income that would be delinquent if the property is deemed to be let out. Relevant if you possess multiple properties but designate one as self-occupied while treating others as rented for tax purposes.
What are the benefits of ITR for Rental Income?
When submitting their ITR, taxpayers who receive rental income from a property can take advantage of specific tax perks and deductions. The purpose of these deductions is to lower the tax obligation related to rental revenue. There are some significant benefits of ITR for rental income.
- Repayment of Loan:
- Taxpayers can claim a deduction on the top amount repaid towards a home loan under Section 80C of the Income Tax Act.
- This deduction is within the total amount allowed by Section 80C. This is one of the benefits of filing ITR for rental income.
- Home Loan Interest:
- Section 24 of the House Property allows deductions for interest paid on house loans. There are certain restrictions on the maximum amount that can be deducted.
- Section 80EE:
- First-time home buyers can claim a fresh deduction of up to INR 50,000 on the interest paid for a home loan.
- However, this deduction is subject to specific conditions as specified under Section 80EE.
- Section 80EEA:
- Another deduction accessible to individuals purchasing their first home is covered under Section 80EEA. This provision permits a new deduction on the interest paid for a home loan.
- Analogous to Section 80EE, certain conditions must be fulfilled to claim this deduction.
Conclusion
Filing accurately your ITR for rental income not only ensures compliance with tax laws but also allows you to take advantage of valuable tax benefits. These benefits, including deductions for home loan interest and municipal taxes, can significantly reduce your tax burden. By understanding the ITR process and maximizing your deductions, you can optimize your tax situation and keep more of your rental income. Filing an ITR for rental income is considered as crucial.
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FAQs
1. What is ITR for Rental Income?
If you’re a resident Indian earning rental income and your income falls within specific limits, you can file ITR-1. This form covers salary, pension, rental income from one property, and other basic income sources.
2. What charges can be deducted from rental income on a tax return?
Permissible deductions include mortgage interest, property taxes, insurance, maintenance, repairs, utilities, property management fees, advertising costs, and depreciation.
3. How is rental income reported on a tax return?
Rental income is typically reported on Schedule E (Form 1040) in the United States. Landlords should accurately report both gross Rental income and deductible expenses to calculate their net Rental income.
4. Can rental losses be deducted from other sources of income on a tax return?
Yes, rental losses can frequently be subtracted from other sources of income, subject to certain limitations and rules. Landlords should check the tax laws in their country to determine eligibility for abating rental losses.
5. What records should landlords keep for their rental income tax return?
Landlords are advised to maintain comprehensive records of rental income, expenditures, and accompanying documentation like invoices, receipts, and bank statements. This documentation is essential for accurate reporting and implicit audits.
6. Which ITR form should I use if I only have rental income?
If your total income for the financial year includes only salary income, income from one house property (excluding brought forward losses), and income from other sources (excluding lottery winnings and racehorse income), then you can file your ITR using the ITR-1 form.
