When filing your Income Tax Return (ITR), one of the most common questions taxpayers have is: Which form should I use, and how can I maximize my tax savings?
If you have income from house property, you must be reported in your tax return and fill out the correct ITR form. How to pick the right ITR form depends on several factors such as your current occupation, annual income, number of properties owned and income from other sources such as stocks and fixed deposit (FD), among others.
Here we breakdown everything you need to know about reporting income from property, including the right ITR form to choose, how to report the income correctly and the common mistakes taxpayers often make while filing this section.
What is income from house property?
Income from house property refers to the rental income earned by an individual from a property consisting of any building or land which is not used for any business or professional purpose.
Such an income is taxable under the head “Income from House Property” as per the income tax laws.
However, it’s important to note that a property can only be taxed under “Income from House Property” when it’s legally owned by the taxpayer and the property is generating rental income or at least have the potential to generate income.
The taxation on the income of a rental property is calculated on an annual basis.
Which ITR form to choose
If a salaried taxpayer owns only one property, they must fill ITR-1. Whereas, for people who own and earn from multiple properties, they must fill ITR-2, 3 or 4, depending on the composition of your income, Jain said. Here’s a detailed breakdown on who should opt for which form:
ITR forms for taxpayers with single or multiple properties
| ITR form | Who can use | Key conditions | Who cannot use |
|---|---|---|---|
| ITR-1 (Sahaj) | Resident Individuals |
|
Income > ₹50 lakh |
| ITR-2 | Any individual and *HUFs |
|
Business or profession income |
| ITR-3 | Any individual and *HUFs |
|
Those eligible for the rest 3 ITR forms |
| ITR-4 (Sugam) |
Residents individuals, *HUFs & firms under presumptive taxation (Sec. 44AD, 44ADA, 44AE) |
|
More than 1 house property Income > ₹50 lakh |
Source: ClearTax
*HUF: Hindu Undivided Family
In case, a property has two or more co-owners, each one of them must file a separate ITR to report their share of income from the property. The income should be declared only in proportion to their ownership share.
For example, if two brothers jointly own a property in equal proportion and and earns ₹1,20,000 annually as rental income, then they will each report ₹60,000 in their respective ITRs. “Each one of them can also claim the 30% standard deduction on the rent,” Jain clarified.
What to do if you have more than one house property?
If a taxpayer owns multiple properties, the income tax act allows them to treat any two houses as self-occupied. The remaining properties will automatically be considered “deemed to be let out” even if they are not actually rented.
Citing an example, Balwant Jain, a tax and investment expert said, “If you have a house in your current city of residence and another ancestral property at your native place, then you can classify both of them self-occupied, which means no tax is charged on their notional rental value.”
However, if you own more than two houses, the additional ones will be taxed, even if they are vacant:
- The notional rent of the house, which is either the market value or the standard rent under local laws ( whichever is lower) will be considered taxable.
- However, a taxpayer can still claim a 30% standard deduction on that notional rent under Section 24(a). This also applies to “let-out” houses which are actively bringing in rent.
- If there is a home loan on such property, interest deduction can also be claimed by the owner.
Common mistakes to avoid
Filing an ITR might be a complex process altogether. People often miss out on important details, which makes them feel stuck at the verification process.
“The most common mistake that a taxpayer makes while filing ITR is missing out on reporting the income of an entire property. For instance, a person has a property in their native but they omit it entirely mistakenly,” Jain said.
However he also noted that there is less scope of committing a mistake if you choose the right form.
If there is an error in your form, the Income Tax Department will notify you and give you a chance to make the necessary corrections. Once the verification is done, to processing of the ITR takes anywhere between a few hours to 6 months, depending on the complexity of the composition of the income, said Jain.