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Tax on rent income as per income tax and service tax

Rental income is taxable from the point of view of income tax and service tax. Many times tax payers forget to include or consider rental income while showing income. I have discussed rental income treatment as per income tax and service tax view in this article. You will also get insights about TDS on rent.

Tax on rent income under various tax laws:

Income tax on rent income:

For income tax purpose, we can divide rent income from two sources:

  1. Rent income from building or land appurtenant to it.
  2. Rent income from land ( no building attached) and other property like vehicle, machinery, furniture etc.

Income tax on rent income from building:

As per income tax act, rent income should be included in the head income from house property. No matter whether assessee is doing business of giving building on rent or not.

As per definition of income from house property,

Income from building or land appurtenant thereto is taxable under the head income from house property.

Rent income is taxable as per inherent capacity of income generation of property. So whether you have let out or not let out the property, tax will be levied as per notional basis.

However, first property is exempt from tax if it is self occupied. In this case, you can consider net annual value of property as NIL.

Other property will be considered as let out and tax will be levied on them. You need to consider actual rent received or receivable also while making calculation of tax on rent income. So it is always better to rent out the property as per income tax view.

Deduction available for house property income u/s 24:

To save income tax on rent income, you can avail deduction u/s 24.

Standard deduction : standard deduction at the rate of 30% is available to rent income.

Deduction for interest on purchase or construction of property : There is no limit for availing this deduction for let out property. You can get deduction for interest accrued.

When property is self occupied, deduction limit is Rs. 2,00,000 p.a. (from f.y. 2015-16).

Detailed article with example of computation of income from house property can be read here.

Income tax on rent income from property other than building:

If you have given property other than building ( Plot, machinery, vehicle, furniture etc.) on rent, the income from rent should be taxable under the head ‘ income from other sources.’

TDS on rent income u/s 194I:

In following situation, tenant is required to deduct TDS u/s 194I from rent income:

  1. If rent income is more than Rs. 180000.
  2. Rent income can be any sources. It means tds u/s 194I is applicable for rent income from building or property other than building.
  3. Tenant is company, AOP, BOI, any person other than individual or HUF, individual or HUF who is covered under 44AB in immediate preceding financial year. ( means whose turnover is more than Rs. 1 crore or 40 Lakh in previous F.Y.).

So when your Tenant has deduct TDS, please cross check whether he is liable to deduct TDS.

Please note that while deducting TDS, service tax component should not be included. Suppose your rent bill is Rs. 228000 including 14% service tax. You need to deduct 20000 ( 228000/11410010%) from bill without touching service tax component. Net payment will be Rs. 208000 ( 228000-2000).

TDS refund:

You can get TDS back in your bank account if your tax liability is less than TDS deducted. For it, you need to file income tax return.

Service tax on rent income:

Service tax is indirect tax which is levied on your rent income. But you are not required to pay it from your pocket. You need to charge service tax on bill of rent income, collect it from tenant and deposit to government.

However, service tax is not applicable to each landlord. In following situation, service tax will be applicable to rent income:

  1. Rent income can be from any property or asset.
  2. Landlord is not eligible to get small service provider exemption means his taxable service turnover of previous year is more than Rs. 10 Lakhs. You can read detailed post about small service provider here.

The rate for service tax for rent income will be 14% . Also note that there is no reverse charge mechanism applicable for rent income.

Sometimes due to lack of proper understanding taxpayer skips rent income in income tax return. Which is not right practice. Get help of our experts to file your return and proper disclosure of income. contact here to start.

23 Comments

  1. By Kannan

    Only during Feb 2015 my company income crossed 10L so I had registered for service tax during March 2015 and got the service tax ID was allocated. Immediately paid advance service tax before March 2015. But missed to file the tax returns for the complete FY 2014-2015. If I file the tax return now how much fine need to be paid and how to get waiver for delayed filling. Thank you

    • By admin

      Sorry sir. But due to lack of time, we do not provide calculation in comments.

      • By Kannan

        Total Income 1200000
        Deductions for first time 1000000
        Balance income for ST 200000
        Abatement Exception 0.4
        Service Payable Amount 24720
        Advance ST Paid before March 2015 30000
        Refund ST 5280

        Here is sample calculations. Since service tax is well paid before March 2015 but only filling is not done , does any penalty would be applicable for not filling and approx how much it would be . Kindly help out

  2. By Suraj karn

    very good article
    Write on all deduction under chapter VI

    • By admin

      Thanks.

  3. I am paying 16500 as rent for accomodation and working as independent consultant. am getting paid after flat 10% TDS deduction. Can I show 16500 as House rent paid while filing return? If yes, how much i will get rebate?

    • No house rent is not allowed for deduction for business income.

      • means no benefit in tax if am working as free lancer

      • By admin

        No deduction for house rent for business profit

  4. By satish naik

    received itax notice u/s 143(1). tax demand as against refund claimed. Reason -TAN no of 2 entries out of 9 entries in Sch-TDS2 is not matching, hence TDS credit not considered..Tried for Rectification request on line, as e returned was e filed,.under,” correcting tax mismatch option.where all the entries , to be corrected & already correct to be re-entered.Though 10 entries are allowed as per information there, it’s not allowing my 9th entry.,saying only 10 entries allowed.??is it software problem , ? Tried in 2nd option,(correcting data) but not able to get xml files /or any document for correction.Tried 3rd option also. Can you pl. guide. All the data is correctly filled in original return except these two TAN Nos only.
    Thanks, —Satish Naik

    • By admin

      I think there is software problem. Use ITR utility provided by income tax department. Also download form 26AS to track correct TAN no.

  5. By TAPASH KUMAR BISWAS

    Dear Madam, we are a Pvt Ltd company, engaged in Security Provider business,,send our couriers by a First Flight Franchisee,whose business status is Proprietorship. Till October’2015, invoices raised by them to us by charging Service tax and accordingly we took input Credit from the same. From this month, we asked them not to charge Service Tax on their bills as we are liable to pay service tax under RCM. is it correct ? Please advice.

  6. By GOHEL

    how to service tax entry pass in tally erp 9, service tax@14.5%

    • By admin

      Party a/c Dr

      To income a/c

      To Service tax payable a/c

  7. By jayshree nair

    i am working in proprietorship co. & if i were on leave for more than 15 days what will be the calculation of Professional tax. Is it to be make full payment of on basis of present days.

    • By admin

      Consider professional tax for full month.

  8. By Vaibhav

    hello in Rent a cab service toll and parking charges recovered from client whether same has consider in taxable value? if not pls give any recent case law

    • By admin

      It is not clearly renting charges but can be considered charges as bundle service. In this case, you need to search because cant provide any case laws.

  9. By PRAVIN

    “” If any employee resigns and he relived of his duty with in the notice period , the amount which we are recovering from the employee is subject to service tax of 14% to be charged and collected from the employee : Input tax credit ineligible for that “”

    Kindly confirm the correctness.

    • By admin

      Pravinji,

      Service tax cant be levied on employee-employer relationship. However, Please give more details about question. So that I can answer. :)

  10. By Paresh Shah

    What is service tax rate and its calculation on Computer AMC as on date for FY2015-16

  11. By Vishhal

    Dear Sir/ Madam,

    My wife has started new recruitment frim under sole properitorship. Is service tax registration is required for new firms.

  12. Dear Tarannum,

    I have asked by one of my relative to look over his company accounts,He owes a software consulting company,Its revenue below Rs.10 lakhs. They are giving software services outside India(Dubai),when bill receipt concerned client has not deducted TDS and advance tax also not paid.I am in confusion please clarify me?

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