I have inherited a property which has been rented out and receives regular rental income. Does the rent become part of my income while filling income tax since the property has been inherited by me?
Have you transferred in our name legally? If not, you have to do it without delay. For that you may need to pay the stamp duty and registration charges along with the will of the deceased which makes you the successor of the property in question.
Once the property is legally transferred in your name, the next step is to sign up a fresh lease agreement with the tenants seeking to transfer the rent legally to you directly. The income thus received from rental must be added to the total income earned by you in a financial year and appropriate income tax must be paid as per the slab of the income incurred. Rental income, whether it is from inherited property or second purchase, is considered as taxable income and payable as per your tax slab.
You will have to pay tax on the rental income. The annual value of house properties other than those which are used for business or professional purposes is accountable as income from house property and needs to be calculated in order to figure out the tax for the same. The annual value of a property is the amount of money that the property can ideally or actually realise in any given financial year.
As per the Income Tax Act, the Annual Value of the property is the inherent capacity of the property to earn income and is taxed to the owner. As per the same, the taxable income could be either the Gross Annual Value (GAV), Net Annual Value (NAV) or Annual Value.
- Gross Annual Value of the property will be the highest of
o Rent received or receivable
o Fair Market Value
o Municipal valuation
- Net Annual Value will be the Gross Annual Value less the municipal taxes paid by the owner
- Annual Value is Net Annual Value less the Deductions as per section 24
In effect, if a person has the ownership of a house property and has been paying the municipal taxes for the property as well as the property let out, point 3 or the Annual Value will be the amount that is finally taxable.
However, there are deductions allowed. The deductions applicable for Income from House Property can be considered as the following as per Section 24 –
- Deduction under Section 24(a) – 30% of Net Annual Value
- Deduction under Section 24(b) - interest on capital borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property.
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