Thanks. I was trying with Area2d before. So what I did was assign 3 Area2d to the paddle itself which is a kinematic body. Not sure if this was the best approach since I couldn't get it to work properly.
In the end I got it to work by checking the position of the ball relative to the position of the paddle. Here is the code in case someone is curious.
var collision_info = move_and_collide(velocity * delta)
velocity.x = velocity.x * -1 # Bounce
var p_pos = collision_info.collider.position
if position.y > p_pos.y + 25 and position.y < p_pos.y + 75:
velocity.y = abs(velocity.x)
elif position.y < p_pos.y - 25 and position.y > p_pos.y - 75:
velocity.y = -abs(velocity.x)
velocity.y = 0
velocity = velocity.normalized() * speed
The paddle measures 10 by 150 pixels