Tax on commercial property rental income in India is governed by both income tax and GST laws.
The tax treatment, deductions, and compliance requirements differ based on the classification and the annual rental income.
Tax on Commercial Property Rental Income
Now let us check each step about how commercial property rental income is taxed, Just check
Income Tax Treatment
- Classification:
- Most rental income as per ARV from commercial property is taxed under the head Income from House Property.
- If property leasing is the main business activity, the income may be treated as “Business Income,” allowing broader deductions.
- Calculation of Taxable Income:
- Gross Annual Value (GAV): Higher of actual rent received or the fair market rent.
- Less: Municipal Taxes: Deduct municipal/ paid property tax during the year.
- Net Annual Value (NAV): GAV minus municipal taxes.
- Standard Deduction: 30% of NAV allowed for repairs and maintenance.
- Interest on Borrowed Capital: Full deduction of interest paid on loan taken for the property (no cap for rented commercial property).
- Taxable Rental Income: Final amount after all deductions, taxed as per the owner’s income tax slab.
- Basic Exemption Limit: For individuals, rental income up to Rs. 2,50,000 is tax-free, subject to overall income.
- Co-ownership: If co-owners have defined shares, each is taxed on their share; otherwise, taxed collectively.
Example Calculation
| Step | Amount (Rs. ) |
|---|---|
| Annual Rent (GAV) | 5,00,000 |
| Less: Municipal Taxes | 20,000 |
| Net Annual Value (NAV) | 4,80,000 |
| Less: Standard Deduction (30%) | 1,44,000 |
| Less: Interest on Loan | 1,00,000 |
| Taxable Rental Income | 2,36,000 |
GST on Commercial Property Rental Income
- Applicability:
- GST is applicable at 18% on rental income from commercial properties if annual rent exceeds Rs. 20 lakh (Rs. 10 lakh in special category states).
- No GST if property is rented for personal use (residential purpose).
- Landlords must register for GST and collect it from tenants if threshold is crossed.
TDS on Commercial Rent
- TDS Rate:
- Tenants must deduct TDS at 10% if annual rent exceeds Rs. 2.4 lakh, provided landlord’s PAN is available.
- If PAN is not provided, higher TDS rate applies.
Deductions and Tax Planning
- Deductions Allowed:
- 30% standard deduction on NAV for repairs/maintenance.
- Full deduction for interest paid on loans (no cap for rented commercial property).
- Municipal/property taxes paid.
- Additional business-related expenses if classified as “Business Income” (property management, staff, utilities, etc.).
- Loss Set-off and Carry Forward:
- Loss under “Income from House Property” can be set off against other income up to Rs. 2 lakh per year; unabsorbed loss can be carried forward for eight years but only against future house property income.
Compliance and Recent Changes (2025) of Tax on Rental Income
- New Income Tax Bill 2025:
- Annual value for vacant periods is based on actual rent received during occupancy, reducing tax burden during vacancy.
- Interest deduction for self-occupied properties capped at Rs. 2 lakh, but no cap for rented properties.
- Clarified rules for co-ownership and treatment of arrears/unrealised rent.
Summary Table: Tax on Commercial Property Rental Income
| Aspect | Details |
|---|---|
| Income Tax Head | Income from House Property (usually); Business Income (if main business) |
| Taxable Value | Higher of actual or fair market rent (GAV), less deductions |
| Deductions | 30% standard deduction, municipal taxes, full loan interest |
| GST Applicability | 18% if annual rent > Rs. 20 lakh (business use only) |
| TDS on Rent | 10% if annual rent > Rs. 2.4 lakh |
| Basic Exemption (Individual) | Up to Rs. 2,50,000 rental income tax-free |
| Loss Set-off | Max Rs. 2 lakh/year against other heads, 8-year carry forward |
| Co-ownership | Taxed as per share if defined, else collectively |
