Income Tax Return: Here is how to calculate income from residential, commercial property while filing ITR

If you own a property and earn rental income from it, it is essential to include that income and pay taxes on it when filing your Income Tax Return (ITR). Failure to do so can have consequences, including receiving a tax notice. Hence, when filing your ITR, you must accurately report the rental income earned during the financial year. This includes both residential and commercial properties. The rental income should be included under the appropriate head of income, depending on whether it is considered a house property or business income.

Timely and accurate reporting of rental income can help you avoid unnecessary tax complications in the future. Here is how to calculate income from house property: 

Tax treatment for one residential house 

The income earned from renting house property shall be taxed under the head Income from House Property under Income Tax Act, 1961. This income from house property is subject to tax based on the Gross Annual Value (GAV). 

“It can be inferred that the GAV of the house property shall be deemed to be the higher of the actual rent received or expected rent of the house property. The term ‘expected rent’ means the amount that is higher of standard rent and higher value between the municipal value or fair rent of the house property. Consequently, the municipal taxes paid by the taxpayer are deducted from GAV to obtain the Net Annual Value (NAV), which is subject to a standard deduction of 30% of NAV along with a deduction of interest on the loan and the remaining amount shall be considered as Income from House Property,” says Yeeshu Sehgal, Head of Tax Market, AKM Global, a tax and consulting firm. 

The income from house property would be included in the total income of the taxpayer, which shall be chargeable to tax as per the applicable slab rate respectively.

How to Calculate Income From House Property
Actual Rent (a)	XX
Expected Rent (b)	XX
Gross Annual Value (GAV); Higher of (a) and (b)	XX
Less: Municipal Taxes  (c)	XX
Net Asset Value (NAV) ; GAV- c	XX
Less: Standard Deduction (30% of NAV)	XX
Less: Interest on Loan	XX
Income From House Property	XX

Tax treatment when you have more than one house on rent

There is no restriction under the Income Tax Act 1961 as to how many houses a person can own. A taxpayer can have a maximum of two houses as self-occupied. “Any two of the house properties (as per the taxpayer's choice) shall be treated as self-occupied and the remaining properties shall be treated as deemed rented and will be taxed accordingly as mentioned above,” says Sehgal. 

Tax treatment for commercial properties 

In case of income from renting commercial property, it shall be chargeable to tax under the head 'house property, if the business of the taxpayer is not renting properties. 

“In cases where the taxpayer is in the business of renting commercial properties and has acquired them with the objective of renting the said properties, it will be characterised as ‘business income’ and chargeable to tax under Profit and Gain from Business and Profession,” says Sehgal.