Tax implication on Rental Income realized in India

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Tax implication on Rental Income realized in India
As with the other sources of income that need to be accounted for while filing tax returns, rental income accrued from a rented property has tax implications. And the same is taxable as per the Indian Income Tax law. Nonetheless, whether or not, an individual is a resident citizen or a NRI, any rental income earned on a property held in India attracts tax liability. For the same, the tax laws of both the resident country and the terms of the Double Taxation Avoidance Agreement between India and the home country should be paid heed to. To know more on it. Click here

The method of taxation is however dependent on the way the property is rented out i.e. either as a service apartment, a paying guest, a corporate guest house, a homestay, a fully furnished property etc.

For property rented out as either a PG accommodation or a fully-furnished property

The rental income shall be charged under the head income from house property. Furthermore, the entire income realized by by way of renting out property that is taxable as per Section 22 shall not be subjected to tax, as the department allows a standard deduction of 30% towards repair and maintenance. And, regardless of the actual amount incurred, deduction is allowed and remaining 70% is considered for tax computation.

Illustrating the taxation on the rental income: Suppose, in case you earn a rent totalling to Rs. 3,00,000 on an annual basis and assuming a property tax outgo of Rs. Rs. 50,000. You shall be charged for 70% of 2,50,000 for the tax purpose after a allowed standard deduction of 30%.

For property rented out for conducting some business as in while running a service apartment or a homestay

In case the property is used to carry out some business, the income shall be charged under the head income from business and all of the accrued profits after providing for deductions in lieu of business related expenses shall attract tax liability.

Taxability of property rented out as a guest house and corporate guest house

For property rented out as a guest house, treatment of the rental income from the source would depend on whether the premises has been simply rented out or the title owner of the property is running and managing the guest house. So, for the former, accruing income shall be charged under the head income from house property and the later shall be charged under income from business.

For the corporate guest house, which is let out to employees of some corporate group, income shall be charged under the head income from business.

And as though even in case the property is kept vacant, the tax is charged on the deemed rental income, so it will be good in case the owner lets out the property for use in some or the other way. Know about deemed rental income.

Rate of taxation of rental income: Regardless of the head, under which the income shall be charged, tax depending on the title owner's slab rate will be charged i.e. 10%, 20% or 30% that excludes cess and service charge.

Story first published: Thursday, March 6, 2014, 11:25 [IST]
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