• About Us
  • Our Partners
  • Become an Advisor
  • NRI
  • QROPS
  • Careers
  • Alumni Portal
  • Public Disclosures
Select a language English
  • Pay Premium
  • COVID-19
    Assistance
    Covid-19 Crisis
  • Our
    Products
    • Protection Plans
    • Savings & Investments
    • Retirement & Pension
    • Group Business
    • QROPS
    Covid-19 Crisis
  • Our
    Funds
    • Fund Fact Sheet
    • Market Review
    • Check NAV
    • Market Highlights
    • Annual Fund Review 2019-20
    • Covid-19 Crisis
  • Knowledge
    Center
    • Blogs and Articles
      Term Insurance early bird offer

      With Term Insurance - It pays to be an early bird

      View All

    • Video library
      keep your family secured

      60 seconds is all it takes to keep your family secured!

      View All

    • FAQ

      What is the claims process at Exide Life Insurance?

      View All

  • Planning
    Tools
    • Calculate How Much
      Life Cover You Need
    • Risk Analyser
      Life Insurance
    • Child Education Planner
      Number
    • Know Your Retirement
      Number
    • Investment
      Calculator
  • Customer
    Service
    • Premium Payment Options
    • Self Service
    • Instant Sign up for Direct Debit
    • All Claims
    • Download Center
    • Term Insurance early bird offer

      Track your Application

    • Term Insurance early bird offer

      Track your
      Claim

    • Track your Service Request

Eng
Pay Premium
  • Our Products
  • Our Funds
  • Knowledge Center
  • Planning Tools
  • Customer Service
  • About Us
  • Our Partners
  • Become An Advisor
  • NRI
  • QROPS
  • Careers
  • Alumni Portal
  • Public Disclosures
  • Share via:
    • Home/
    • Our Funds /
    • Knowledge Center/
    • Blogs and Articles/
    • The curious case of rental income
  • Categories:
  • Term Plan
  • Health Plan
  • Savings and Investments
  • Retirement
  • Tax Planning
  • Services
  • All

The Curious Case Of Rental Income

Tax Planning
Likes
Shares

    Income from rental property has different connotations depending on whether it is treated as house property or business income

    • Rental income from a property could be treated as income from House Property and income from Business and Profession
    • If the property income is declared as business income then the owner can claim a tax deduction on actual expenses
    • Property income is considered as income from house property if the property is not used by the owner for business or professional purpose
    rental income

    It is common to come across several retired people who have properties that they let out from which they earn income that meets their retirement income needs. In their case the tax that they would pay on this inflow of money by way of rents will depend on how this income is treated. For most people rental income from a residential property that is let out will be treated as income from house property. But, for those who are in the business to let out property, the same rental income will be treated as business income.

    There are multiple court and income tax rulings in this regard, and if you are in the business of letting out a property then the rental income even from the residential property will be considered as a business income. It is not wrong to have such an income stream and in fact, there are tax benefits to avail if one slots such income as business income instead of house property. It will help to know that in case of classification of property, income is a bit subjective. Property income can be classified as either or combination of following three: Business Income, Income from other sources or Income from house property.

    Income from property

    The classification depends on the line of the business of the owner. Taxability of income from renting of immovable properties (Land and Buildings) can broadly fall under the following two heads of income in the Income Tax Act: Income from House Property (HP) and Income from Business and Profession (PGBP).

    The taxability as house property provides (or limits) a standard deduction of 30% of the income along with a deduction on interest paid on borrowed capital for the purposes of acquisition, construction, repair, reconstruction, etc. (subject to limitations provided under the Act). However, in cases when the taxation is under PGBP, any expenditure mentioned or expended wholly and exclusively for the business of leasing shall be allowed as a deduction for tax purposes.

    As there are no limits or restrictions on deductions under the head PGBP, taxpayers veer towards classifying rental income received from lease of immovable property as PGBP. Obviously, this requires the support of facts in every case. The tax authorities, on the other hand, argue that rental income should be chargeable to tax as HP Income, perhaps the ease (and limitation) of deductions under HP being the driving force.

    This gives rise to  a situation where taxpayers and the department can confront each other on the manner in which the property is being considered for the purpose of taxation. But there have been several instances of conflict, which has also resulted in the judiciary stepping in to analyse and clarify the stand on how to treat rental income under the head PGBP.

    The intent of taxpayer can be gathered from the agreement for lease, Memorandum of Association and subsequent conduct of the parties. So, in case of active ownership of property; if the property yields rental income by virtue of its own legal existence it would be classified as passive ownership and may be classified as HP. The trend of recent judicial precedents and directions released by the Central Board of Direct Taxes (CBDT) reveal that the authorities are now accepting that ownership of property and leasing it out may also be done as part of a “business,” apart from as a mere owner.

    According to the tax authorities the deciding factor is not the ownership of the land or leases, but the nature of the activity of the taxpayer and the nature of the operations in relation to the same. Further, the Apex court has emphasised that for income to be characterised as “business income,” the activities actually carried out by the taxpayer need to be in line with its main object, according to its constitution documents.

    As recently as April 2017, the CBDT issued a circular, wherein it has been clarified that the income from letting out of premises or developed space along with other facilities in an industrial park or SEZ is to be charged to tax under the head PGBP and has guided the department in not filing any appeals on this issue and to withdraw or not press upon appeals already filed.

    As owner of property, you should know that residential and commercial properties are treated in the same way from a tax perspective. The core of this entire discussion is the main line of business of owner irrespective the property is residential or commercial. With this clarity, you could slot the income that you receive from letting out a property can be classified to avail tax benefits.

    Related Articles

    All About Form 15CA and Form 15CB

    When a person makes any payment or remit any money to non resident, the..

    Tax Planning

    All About HUF and Tax Benefits

    By forming a Hindu Undivided Family, you can optimise your tax liabilit..

    Tax Planning

    Should you pay off your home loan?

    Be prepared to loose the tax benefits and bear opportunity cost if you ..

    Tax Planning

    You may also like this

    Income Plans In India

    Exide Life Income Advantage Plan

    Exide Life Income Advantage Plan is a unique savings cum insurance plan which works to your advantage by providing a regular income and life insurance cover.

    Read More
    • Key Links

    • Buy Online
    • Buy Term Insurance
    • Buy Zero Cost Term Insurance
    • Buy Smart Term Edge
    • Buy Heart & Cancer Insurance
    • Buy Single Premium ULIP Plan
    • Buy Investment with Insurance Plan
    • Buy Savings cum Insurance Plan
    • Buy 5 Pay Savings Plan
    • Get a Quick Quote
    • Term Plan Calculator
    • Financial Calculator
    • Have Queries?
    • To Buy Policy Online : 1800 419 0808
    • For Policy Servicing : 1800 419 8228
    • Write to Us
    • Life Insurance Plans
    • Smart Term Pro
    • Smart Term Edge
    • Term Insurance Comparison
    • Critical Illness Insurance
    • Term Riders
    • Retirement & Pensions
    • QROPS
    • Health Insurance
    • Critical Illness Rider
    • Group Insurance Scheme
    • Group Insurance Policy
    • Group Term Life Insurance
    • Group Gratuity Scheme
    • Group Critical Illness Insurance
    • Employees Deposit Linked Insurance
    • Investment Options
    • Endowment Plans
    • Endowment Assurance Plan
    • Secured Income Insurance Plan
    • Long Term Investment
    • Tax Savings Investments
    • Single Premium ULIP Plan
    • Child Plans
    • Child Investment Plans
    • Customer Service
    • Track your Application
    • Track your Service Request
    • Claims
    • Claim Forms
    • Track your Claim
    • Check Unclaimed Amount
    • About Us
    • Management Team
    • Media Centre
    • Awards and Recognition
    • Corporate Social Responsibility
    • Forms
    • My Money Book
    • FAQs
    • Term Insurance FAQs
    • Online Term Insurance FAQs
    • Life Insurance FAQs
    • Retirement & Pension FAQs
    • Child Plans FAQs
    • Savings and Investments FAQs
    • Blogs and Articles
    • Video Library
    • Security Tips
    • Privacy Policy
    • Tax Center
    • Withdrawn Products
    • Sales Illustrator
    • My Connect
    • About E-insurance
    • Terms of Use
    • New Business Premium
    • IRDAI
    • policyholder.gov.in
    • Member of the Life Insurance Council
    • IRDAI IGMS
    • Modification in NAV Computation
    • Grievance Redressal
    • Disclaimer
    • DNC (Do Not Call)
    • Intellectual Property Rights
    • Phishing
    • API & Development

    IRDAI notice : Beware of Spurious/ Fraud Phone Calls: IRDAI is not involved in activities like selling insurance policies, announcing bonus or investment of premiums. Public receiving such phone calls are requested to lodge a police complaint.

    Exide Life Insurance Company Limited.
    IRDAI Registration Number: 114, CIN:U66010KA2000PLC028273
    Registered Office: 3rd Floor, JP Techno Park, No. 3/1, Millers Road, Bangalore- 560 001, India.
    2020 Exide Life Insurance Company Limited. All rights reserved.

    • IRDAI Public Notice on Spurious Calls
    • Sitemap
    • FAQ
    • © 2020 Exide Life Insurance Company Limited
    loading

    Please rotate your screen for
    optimal experience

      • Share via:
    Buy Online :
    • Smart Term Edge
    • Single Premium ULIP
    • Locate a Branch
    • Service Queries
    • Speak to our Expert
    • Smart Term Edge
    • Single Premium ULIP
    • Locate
    • Speak to our Expert
    • Buy

    Have Us Call You

    Disclaimer


    By submitting your contact details (Telephone number), you authorize Exide Life Insurance and/or its authorized service provider to verify the above information and/or contact you in relation to the insurance products sold by Exide Life insurance even if this telephone number is presently or subsequently registered on the Provider. Do Not Call/Do Not Disturb Register or the National Do Not Call Register.

    Please enter first name
    Please enter a valid Birth date
    Please enter a valid email id
    Please enter mobile number Please enter valid number
    Please select gender
    Please select state
    Please select city
    Please select best date to call
    Please select best time to call
    Please select Preferred purchase mode
    Please select Where did you find about us
    Disclaimer Disclaimer
    Generate OTP Reset

    *Clicking on Generate OTP will send a One Time Password to the entered Mobile Number. Please use this password for verification

    Enter the OTP which was sent to your number

    Please enter OTP Please enter correct OTP or Regenerate OTP Your OTP has expired. Please Regenerate OTP.
    Submit Please wait Re-generate OTP
    You have exceeded the number of times an OTP can be generated, request you to please try after sometime.
    OTP Regenerated. Please enter the new OTP
    *The OTP will be valid only for the next 15 minutes. In case, if you have not received the OTP, click on Regenerate OTP.

    Have Us Call You

    Verification Successful

    Thank you for visiting our website and showing interest in Exide Life Insurance. Our representative will get in touch with you shortly.

     

    Back To Home