How is Tax computed on Rental Income?
Tax on Rental Income
Income from house property is taxable under the Income Tax Act as the head ‘Income from house property’. The income earned includes the rent from the property to the owner. Property includes any building (house, office, factory, etc.) which is being rented out to someone. The tax on rental income is the only tax which is charged on a notional basis. The tax is not based on the actual rent received but is based on the capability of the property to generate income.
Tax Deduction on Rental Income
There are two types of deductions on rental income:
- Standard Deduction of 30%
- Interest on borrowed capital
A standard deduction of 30% of is done from the rental income of house property for repairs, maintenance, etc. The second type of deduction is allowed when the interest is paid on the property with borrowed capital which has been acquired, constructed, or repaired.
If the property is taxable, the entire amount paid as interest is allowed as deduction. For amount up to Rs. 1.5 lakh, the property is tax free.
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Conditions for Income to be taxed under Income from House Property
- The property must consist of land, building, etc.
- The taxpayer should be the owner of the house property.
- The property should not be used for the purpose of any business/profession by the taxpayer.
For any help on ITR Filing feel free to consult the tax experts at Taxraahi. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing.