According to the Income Tax Act of 1961, the rental income from a house or building is taxable under the head- Income from House and Property. However, if the property owner earns any income from renting out their vacant land or any other type of property, such income will be taxable under – Income from Other Sources.
Every property owner who rents out their home in return for money is considered to be making rental income. And the landlords who are making money through rental income must pay a certain percentage of their earnings towards tax.
If the thin line between the property’s Gross Annual Value (GAV) and rent income as a principal source of income is not established, the concept of tax-free rental income can become extremely complicated.
Landlords who hold a property with a gross annual value of less than Rs 2.5 lakhs are exempt from paying any tax on their rental income. However, if such income is their primary source of income, then as per the Income Tax Act 1961 guidelines, they are required to pay the tax.