BHUBANESWAR: Being an Airbnb host may help you use your home to rake in a lump sum to fund your passions, but filing returns for the same may be tricky! The problem arises because it depends on whether the owner is enjoying the rental income or is exploiting it. And, the income tax regulations don’t provide a specific answer.
For starters, incomes, for the purpose of income tax calculation in India, are generally classified under five heads — income from salary, income from house property, income from business or profession, income from capital gains and income from other sources. The income an individual receives from his employer gets classified as salary income, while the rental income he receives from a house that he lets out gets categorised under income from house property.
The income tax laws allow separate deductions for incomes under different heads. “For example, a salaried taxpayer can claim standard deduction from salary income, while a taxpayer carrying on any business/ profession can claim the expenses he has incurred to run his business as a deduction from his gross receipts from business/ profession,” explains Archit Gupta, Founder & CEO, ClearTax.
This is precisely why it is important to classify income under the appropriate heads for the purpose of filing returns. “This will aid in getting you the right deductions and accordingly determining your tax liability correctly,” said Gupta.
In this case, the income that you receive from letting out your property for rent will be taxed under the head ‘income from house property’. It doesn’t matter whether it’s your house (residential) or your office (commercial). The owner can also deduct the property tax he paid during the year. Further, he can claim a standard deduction at the rate of 30 per cent from such income. In addition, in case he has availed any home loan for purchasing/constructing such house property and he is repaying such a home loan, the interest component of the home loan can be claimed as a deduction from the rental income.
However, Gupta says, it is also important to note that if you are into the business of letting out property, and giving out properties on rent is the object of your business, such rental income will be categorised under the head ‘income from business’. For such income, there is no cap on the deduction for maintenance and when it’s vacant, you don’t need to pay tax on ‘putative’ rent.
Interestingly, the rental income of a person other than the owner cannot be charged to tax under the head ‘income from house property’. If you are a tenant who sub-lets, the rent would be classified as ‘income from other sources’ or profits and gains from business or profession, as may be the case. If you are wondering on what deductions you need to claim, Gupta says, “The case here is same as that of the business income. You can deduct all the expenses incurred.”