One of the greatest and the best source of income these days in most cities of India is rental income – for tenant-occupied property, rental income of the person is the net income from the current production.
The Details of Rental Income and Taxation
The rental income is taxed under the head ‘income from house property’ under the income tax law – the direct tax law of the country. The properties that have been let-out are also subjected to indirect taxation, which is currently in the form of service tax. The occupant of the property may also be required to deduct TDS (Tax Deducted at Source), while the GST (Goods and Service Tax) will also leave some impact on the tax computation on the rental income.
The idea was to widen the scope of TDS, following which the government has inserted a new section of 194-IB in the I-T Act to provide that an individual or a HUF (other than those covered under 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding Rs.50000 for a month or part of month during the previous year, shall deduct an amount equal to 5% of such income as income-tax thereon. This amendment has come into full force from 1st June, 2017.
Existing Tax Laws
Currently, the landlord has to obtain a service tax registration in case the taxable service inclusive of the rental income from all the properties across the country exceeds Rs 10 Lac per year. This, therefore means that as long as income from house property, from all the properties doesn’t exceed 10 Lac you are not in the service tax net.
This point means that currently service tax is levied only on commercial properties and not on residential properties. However, if your residential property is being used as a commercial, it is subjective to service tax.
Proposed Condition under GST
Unlike under the current service tax rule, the threshold limit for applicability of GST has been increased from Rs 10 Lac to Rs 20 Lac. Therefore, many of property owners who were earlier falling under the rule of service tax are now exempted of it. The GST is proposed to be levied at 18%, on the letting-out of commercial properties.
Provision of Tax Deduction on the Income Tax for Any Rental Property
Unlike what happens in case of Service tax and GST where the landlord who is responsible to collect the service tax/SGT from the tenant on the rent charged in case he is registered under the laws, in case of the income tax laws the tenant or occupant can deduct income tax at source at 10% in case the rent of the property exceeds 1.80 Lac per annum. What is important to note is that the TDS provisions are applicable for both residential and commercial properties.
Another important provision introduced in the budget 2017 is for the deduction of TDS on rent and this provision has been made applicable for the individuals or the Hindu Undivided Families who are not required to get their accounts audited. This means that if an individual or HUF is paying a rent of Rs. 50,000 per month and is not registered in the categories mentioned above, he would be required to deduct TDS at 5% under section 194IB.