A Complete Guide to Rental Income Taxation in India

April 2025

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How is Rental Income taxed in India?

Rental income is taxed under two categories:

1. Income from House Property (IFHP) – Applies to rental income from residential or commercial properties held as investments
2. Profits and Gains from Business or Profession (PGBP) – Applies if renting is a full-time business

Important update for 2025

The Finance Act 2024 mandates that from 1 st April 2025, rental income from residential properties must be taxed under IFHP and cannot be classified under PGBP. This ensures uniform taxation and prevents tax avoidance.

For IFHP, taxable rental income is based on the higher of actual rent received or fair market rent.

Deductions available for Property Owners

To lower your tax burden, you can claim deductions:

• To lower your tax burden, you can claim deductions:Standard Deduction (30%) – A fixed deduction irrespective of actual expenses. If expenses exceed 30%, no additional deduction is allowed.
• Municipal Taxes – Deductible if paid to local authorities.
• Home Loan Interest (Section 24b) – If you have a home loan on the rented property, you can deduct the interest paid, subject to other provisions under the Income Tax Act
• P r i n c i p a l Repayment (Section 80C) – Under the old tax regime, deduction up to ₹1.5 lakh is allowed.

TDS (Tax Deducted at Source) on Rental Income

TDS is deducted from rental income before you receive it, depending on who the tenant is:

• TDS under Section 194I (For businesses and corporations):
  If annual rent amount exceeds ₹2,40,000, the tenant must deduct 10% TDS before paying you.
  It is proposed that from 1st April 2025, this limit will change to ₹50,000 per month.
• TDS under Section 194IB (For individuals and HUFs not under tax audit):
  2% TDS (effective 1 st October 2024) for rent above ₹50,000 a month.
• Non-compliance results in penalties and interest levies.

GST on Residential property rentals

• If you rent out a residential property for personal use, no GST is applicable.
• If you rent it to a person registered under GST (for other than personal use), 18% GST is applicable under the Reverse Charge Mechanism (RCM), meaning the tenant pays the GST directly to the government.

GST on Commercial property rentals

• If you are a GST-registered property owner renting a commercial property, you must charge 18% GST and pay it to the government under Forward Charge Mechanism (FCM).
• If you are not GST-registered, but your tenant is, the tenant pays the GST under RCM.
• If your total rental income exceeds ₹20 lakh per year, GST registration is mandatory.

Conclusion :

For rental property investors, staying compliant with 2025 tax laws is crucial. Proper tax planning ensures higher returns and lower liabilities. Keep track of TDS, GST, and deductions to legally optimize your rental income.

Source: Thane Realty News

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