Income Tax on Rental Income — House Property vs Business Income and Deductions

Rental income from property is typically taxed under "Income from House Property" in India — with specific deductions available to reduce the taxable income. However, in some cases (like serviced apartments or Airbnb hosting) the income may be taxed as "Business Income." Understanding the distinction and the deductions available is important for every property owner. Here is the complete guide.

Income from House Property — Key Concepts

• Annual Value (AV): The higher of (a) actual rent received, (b) fair rent (market rent for similar property), or (c) municipal valuation — whichever is higher, subject to vacancy deduction
• Net Annual Value (NAV): Annual Value minus Municipal Taxes paid during the year

Deductions from House Property Income

• Standard deduction — 30% of NAV: Flat 30% deduction without any proof or documentation — covers repairs, insurance, maintenance etc.
• Interest on home loan — Section 24(b):
  • For let-out property: Full home loan interest is deductible (no cap)
  • For self-occupied property: Maximum ₹2 lakh per year (₹30,000 if loan taken before April 1, 1999)
  • Under the new tax regime (115BAC): No deduction on self-occupied home loan interest
• Unrealised rent deduction: If tenant hasn't paid rent and is evicted — the uncollected rent is deductible (conditions apply)

Loss from House Property

• If home loan interest exceeds the net rent — a "loss under house property" arises
• Maximum ₹2 lakh loss from house property can be set off against other heads (salary, business income) in the same year (old regime)
• Excess loss carried forward for 8 years and set off only against house property income

When Is Rental Income "Business Income"?

• If the landlord provides substantial services (meals, housekeeping, concierge, transport) alongside accommodation — it becomes a business
• Airbnb hosting with amenity services: Could be business income at 18% GST (if turnover crosses ₹20 lakh) and taxable as business profit
• Regular house property rental without services: "House Property" income

Conclusion

Rental income from house property allows significant deductions — 30% standard deduction, full home loan interest for let-out property, and loss set-off up to ₹2 lakh. SPOTON provides property tax advisory and ITR filing for landlords across Kerala including computing house property income and loss. Contact us for expert income tax services for property owners.