Rental income is taxable; this is something that should be known by you already in case you are a landlord in India. But did you know that you are possibly liable to pay advance tax as well?
A lot of landlords unfortunately spend more on paying taxes than they need or encounter penalties due to ignorance of advance tax rules regarding rental property. This article provides all the information you require in order to make fewer tax payments and evade penalty or control your rental income tax better.
What is Advance Tax?
Advance tax means paying your income tax liability in advance during the financial year instead of waiting until year-end.
As per Income Tax Act, you will have to pay advance tax in quarterly installments when the total amount of tax you are supposed to pay in a year (including after TDS) exceeds ₹10,000.
Who Needs to Pay Advance Tax?
You must pay advance tax if:
- Your total tax liability exceeds ₹10,000 in a financial year
- You earn rental income from residential, commercial, or agricultural properties
- TDS is not deducted from your rental income
- You are a freelancer, self-employed, or receive income from other sources
Exemption: Senior citizens (60 years or older) not having business income are exempt from advance tax, even if they earn rental income.
How is Rental Income Taxed?
Rental Income is Taxed Under “Income from House Property”
If you’re renting out a property, the income is taxed after certain deductions:
- Standard Deduction of 30%: For maintenance, repairs, etc.
- Municipal Taxes: Deductible if paid during the year
- Interest on Home Loan (Section 24(b)): Up to ₹2 lakhs for self-occupied; unlimited for rented property
After deductions, the net rental income is taxed as per the applicable income tax slab.
Advance Tax Due Dates for FY 2025–26 (AY 2026–27)
| Installment | Due Date | Percentage of Tax Payable |
|---|---|---|
| 1st | 15th June | 15% |
| 2nd | 15th September | 45% (cumulative) |
| 3rd | 15th December | 75% (cumulative) |
| 4th | 15th March | 100% |
Missing these deadlines can lead to interest penalties under Sections 234B and 234C.
Example: Advance Tax Calculation for Rental Income
Let’s say you rent out an apartment in Gurgaon for ₹75,000/month.
- Annual Rent: ₹9,00,000
- Less: Standard Deduction (30%): ₹2,70,000
- Net Taxable Income: ₹6,30,000
- Estimated Tax (Assuming No Other Income): Around ₹33,800
Since the tax liability exceeds ₹10,000 and there’s likely no TDS, you are liable to pay advance tax.
Consequences of Not Paying Advance Tax
Interest and Penalty
If you fail to pay or underpay your advance tax, you’ll face the following:
- Section 234B: 1% interest per month on unpaid tax from April till payment
- Section 234C: 1% interest for delay or shortfall in each installment
These penalties can significantly reduce your profits from rental income.
Pro Tips to Manage Advance Tax as a Landlord
1. Estimate Rental Income Accurately
Include rental amounts, escalations, maintenance charges collected, and any other income.
2. Claim All Eligible Deductions
Use the standard deduction, municipal taxes paid, and home loan interest under Section 24(b).
3. Use Form 26AS and AIS
Check your tax credits and rental entries through Form 26AS and the Annual Information Statement (AIS) to stay accurate.
4. Mark Important Dates
Set calendar reminders for all four advance tax due dates to ensure timely payments.
5. Pay Online Using Challan 280
Visit the Income Tax Department’s portal and pay your advance tax using Challan 280.
Common Mistakes Landlords Make
Assuming TDS Covers All Tax Obligations
Most tenants do not deduct TDS, especially in residential leases. If there’s no TDS, you’re responsible for advance tax.
Waiting Until March to Pay Full Tax
This results in penalties for delayed or underpaid installments.
Ignoring Municipal Tax Deduction
These are fully deductible if paid during the year, yet many landlords miss this.
Not Updating Rental Agreements
Ensure your agreements include PAN details and are legally valid to avoid tax scrutiny.
Benefits of Timely Advance Tax Payment
- Avoids penalties and interest
- Spreads tax payments over the year
- Improves financial discipline
- Strengthens your tax profile
- Simplifies ITR filing
Managing Advance Tax for Multiple Properties
If you own more than one rental property:
- Club all income under “Income from House Property”
- Claim deductions for each individually
- Calculate combined advance tax liability
Knowledge of your advance tax liability, as a landlord, is not only important in as far as compliance with the law is concerned, but it also helps to keep your rental incomes safe and free from some costly errors. It does not matter whether you own a single apartment or numerous properties to learn how to work with the advance tax rules that will enable you to do your own intelligent tax planning.
Do not only do this at the end of the financial year. Budget the approximate liability, take availed deductions, and settle tax dues promptly to get safeguarded against penalty and made free of anxiety.
Need help calculating or filing advance tax?
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FAQ,s Frequently asked questions
1.What is advance tax, and who needs to pay it?
Advance tax is the income tax paid in installments throughout the financial year. Landlords with taxable rental income exceeding the basic exemption limit are required to pay it.
2.When should landlords pay advance tax?
Landlords must pay advance tax in quarterly installments as per the schedule set by the tax authorities, typically in June, September, December, and March.
3.How is advance tax calculated for rental income?
It is calculated based on the estimated annual rental income after accounting for allowable deductions under tax laws.
4.What happens if I miss or delay an advance tax installment?
Late or missed payments may attract interest and penalties under the Income Tax Act.
5.Are there exemptions or deductions that reduce advance tax liability for landlords?
Yes, landlords can reduce their taxable rental income by claiming standard deductions, municipal taxes paid, and other allowed deductions.
6.Can landlords revise their advance tax if income changes during the year?
Yes, advance tax can be recalculated and adjusted based on actual income to avoid overpayment or underpayment penalties.
