Renting a house is a common practice, whether you are the tenant or the landlord. However, it is essential to understand the income tax implications associated with income from house property. Both tenants and landlords need to be aware of the rules and regulations set forth by the tax authorities. In this article, we will explore the key aspects of income from house property and its impact on income tax, providing valuable insights to help you navigate this often overlooked area of taxation.

1. House Rent Allowance (HRA):

House Rent Allowance (HRA) is an important component of the salary for many tenants. Understanding the tax benefits associated with HRA is essential to maximize savings. Here are the key points to remember:

  1. Actual Rent Paid: The HRA exemption is calculated based on the actual rent paid by the tenant during the financial year. However, a portion of the salary is deducted before calculating the exemption. This deduction is 10% of the salary.
  2. Salary Structure: The exemption amount is further limited to a percentage of the salary. For individuals living in metro cities, the exemption is 50% of the salary, while for non-metro cities, it is 40% of the salary.
  3. Rent Receipts: Maintaining proper rent receipts is crucial to claim HRA exemptions during tax filing. Rent receipts serve as proof of rent payment made to the landlord and must contain essential details such as the landlord’s name, address, rent amount, and period of payment.

To avail the HRA exemption, tenants need to provide rent receipts as supporting documentation while filing their income tax returns. It is advisable to keep a record of rent receipts throughout the financial year to ensure accurate reporting.

It’s important to note that if the annual rent paid exceeds ₹1 lakh, it is mandatory to provide the landlord’s PAN card details. To ensure compliance and avoid any discrepancies, tenants should carefully review their salary structure, maintain rent receipts diligently, and seek professional advice, if necessary, when claiming HRA exemptions.

By understanding and adhering to these guidelines, tenants can make the most of the tax benefits associated with HRA, reducing their overall tax liability and maximizing their savings

2. Rent Income for Landlords:

Landlords who earn income from house property from their properties are subject to income tax on the rent received. The following key points should be considered:

  1. Income from house property Calculation: The income from house property is calculated by considering the actual rent received or the fair market rent, whichever is higher. There are certain other criteria as well to consider.
  2. Standard Deduction: Landlords can claim a standard deduction of 30% of the annual income from house property to account for repairs, maintenance, and other expenses.
  3. Municipal Taxes: The amount paid as municipal taxes can also be deducted from the income from house property.
  4. Home Loan Interest: If the landlord has taken a loan to purchase or renovate the property, the interest paid on the loan is eligible for deduction.

3. Multiple Properties and Tax Implications:

Landlords with multiple properties need to be aware of the specific tax implications. Here are a few key points to consider:

  1. Self-Occupied Property: If the landlord resides in one of the properties they own, it is considered self-occupied, and no income tax is applicable on it.
  2. Let-Out Property: In the case of properties that are rented out, landlords need to calculate the income from house property and claim deductions accordingly, as mentioned earlier.
  3. Multiple Let-Out Properties: If a landlord owns multiple rented properties, each property’s income from house property and deductions should be calculated separately.

4. Tax Deducted at Source (TDS):

To ensure compliance with tax regulations, tenants are required to deduct tax at source (TDS) from the rent paid to the landlord under certain conditions:

  1. Threshold Limit: TDS is applicable if the monthly rent paid exceeds a specified threshold limit (currently set at ₹50,000 per month).
  2. TDS Rate: The tenant is required to deduct TDS at a rate of 5% on the rent amount paid to the landlord.
  3. TDS Filing: Tenants are responsible for depositing the deducted TDS to the government and filing TDS returns within the stipulated time.

Key Points to Remember for Tenants:

  1. TDS Liability: Individuals or HUFs (except those liable to audit under clause a and b of section 44AB) paying monthly rent exceeding ₹50,000 to a resident are required to deduct TDS under section 194-IB.
  2. TDS Deduction: Deduct tax at either 5% or 3.75% from the rent payment made to the landlord, depending on the Date of Payment/Credit to the Landlord.
  3. PAN Verification: Collect the Permanent Account Number (PAN) of the landlord and verify it with the original PAN card to ensure accuracy.
  4. Furnishing PAN: It is mandatory to provide both the PAN of the landlord and the tenant in the online form while furnishing information regarding the rent.
  5. Accurate Details: Avoid any errors while quoting the PAN or other details in the online form. Contact the Income Tax Department for any necessary error rectification.
  6. TDS Certificate: Download the TDS certificate in Form 16C from TRACES and issue it to the landlord/lessor/payee within 15 days from the due date of furnishing the challan-cum-statement in Form 26QC.
  7. Non-Resident Landlords: If the landlord/lessor/payee is a non-resident, the liability to deduct TDS arises under section 195 of the Income-tax Act, 1961.

Key Points to Remember for Landlords:

  1. Provide PAN: Furnish your PAN to the tenant for the purpose of furnishing information regarding TDS to the Income Tax Department.
  2. Verify TDS Deposit: Verify the deposit of taxes deducted by the tenant in your Form 26AS Annual Tax Statement.
  3. Form 16C: Insist on obtaining Form 16C from the tenant, which should be downloaded from the TRACES website only.

By keeping these points in mind, tenants and landlords can ensure compliance with the tax regulations and fulfill their obligations regarding TDS on rent payments. It is advisable to seek professional guidance if needed to navigate the process effectively.

Understanding the income tax implications of income from house property is crucial for both tenants and landlords. Tenants should be aware of the exemptions available for House Rent Allowance (HRA) and maintain proper documentation to claim deductions. Landlords need to calculate their income from house property accurately, consider deductions such as standard deduction, municipal taxes, and home loan interest, and fulfill their tax obligations. It is advisable to consult with a tax professional to ensure compliance with the tax regulations and to optimize the tax benefits associated with income from house property. By being informed and proactive, individuals can navigate the complexities of income tax related to income from house property and maximize their tax savings.

Talk to us