ITR filing July 31 deadline: Own a commercial property? Don't make these rental income mistakes

Experts say mistakes around choosing the right ITR form, claiming deductions and understanding GST rules are common among commercial property owners.

If you earn rental income from a commercial property, it is generally reported under the head 'Income from House Property'. Taxpayers can claim deductions such as municipal taxes paid and a standard deduction of 30% on the net rental income.

Which ITR form should commercial property owners use?

CA Abhishek Soni said the correct ITR form depends on how the property income is earned.

While filing the return, taxpayers should report rental income under Schedule House Property and claim eligible deductions. If a loan has been taken for the property, interest deduction under Section 24(b) may also be available, subject to applicable conditions.

Many owners confuse commercial and residential property tax rules

Shourya Garg, Advocate at Garg & Garg Tax Associates, said many commercial property owners assume the tax treatment is the same as residential rental income, which can lead to mistakes.

"Commercial property rental income falls under 'Income from House Property', the same head that applies to residential rentals, so people often assume the treatment is identical, and that is where they slip up," he said.

Garg explained that taxpayers should first calculate rent received and deduct municipal taxes paid to arrive at the Net Annual Value. After this, a flat 30% standard deduction can be claimed under the tax rules.

"This deduction covers repairs and maintenance regardless of what you actually spent, so taxpayers do not need to collect separate maintenance bills to claim it," he added.

Don't miss GST rules on commercial rent

One area where commercial property owners often get confused is GST.

Garg said if commercial rental income crosses the applicable threshold of ₹20 lakh a year, GST registration may become mandatory and the owner may need to charge 18% GST on the rent.

"This is separate from income tax and often catches property owners by surprise," he said.

Keep records and classify income correctly

Vipin Upadhyay, Partner at King Stubb & Kasiva, Advocates and Attorneys, said taxpayers should accurately disclose gross rental income and claim only eligible deductions.

"Where the property is used for the taxpayer's own business, the tax treatment differs, and the income may not be taxable under this head," he said.

Have you reported the correct rental income?

Have you selected the right ITR form?

Have you claimed eligible deductions correctly?

Have you checked whether GST rules apply?

Do your rent records match your tax filing?