Tax on Rental Income in India: A Complete Guide for FY 2025-26
Owning a rental property is rewarding — but understanding how the taxman treats your rent can save you thousands.
India taxes rental income under the head "Income from House Property" — a separate category with its own rules, deductions, and quirks. Whether you rent out a single flat in Mumbai or a commercial space in Bengaluru, knowing how the calculation works lets you plan deductions correctly and avoid overpaying.
Step 1: Compute Gross Annual Value (GAV)
The starting point is the Gross Annual Value — broadly, the higher of:
- The actual rent received or receivable in the year, or
- The expected rent (municipal value or fair rent, whichever is higher, capped at standard rent if applicable)
For most residential tenancies, GAV equals the actual rent received. If the property is vacant for part of the year, only the rent actually received during the let-out period counts.
Monthly rent received : ₹25,000
Property let for : 12 months
Gross Annual Value : ₹3,00,000
Step 2: Deduct Municipal Taxes
Subtract any municipal taxes (property tax) paid by you as the owner during the financial year. Taxes paid by the tenant do not qualify.
GAV : ₹3,00,000
Municipal taxes paid : ₹12,000
Net Annual Value (NAV): ₹2,88,000
Step 3: Apply Standard Deduction (Section 24a)
A flat 30% deduction on NAV is allowed for repairs, maintenance, and collection charges — no bills needed, no questions asked.
NAV : ₹2,88,000
Standard deduction : ₹86,400 (30% of NAV)
Balance : ₹2,01,600
Step 4: Deduct Home Loan Interest (Section 24b)
If you have a home loan on the rented property, the entire interest paid in the year is deductible for a let-out property (unlike a self-occupied property, there is no ₹2 lakh cap for let-out properties under the old regime).
Balance after std deduction: ₹2,01,600
Home loan interest paid : ₹1,20,000
Income from House Property : ₹81,600
For a deep dive on Section 24b limits and conditions, see our guide on home loan interest deductions.
Resulting Tax
The ₹81,600 income from house property is added to your total income and taxed at your applicable slab rate. Under the new tax regime for FY 2025-26, the only deduction available against house property is municipal taxes — the standard deduction (30%) is not available under the new regime. Home loan interest is also restricted to let-out properties (set-off losses against other heads is disallowed).
| Regime | Deductions Available |
|---|---|
| Old Regime | Municipal taxes + 30% std deduction + full interest (Section 24b) |
| New Regime | Municipal taxes only (30% std deduction and Section 24b not available for set-off) |
Loss from House Property
If deductions exceed income (common when home loan interest is high), you have a loss from house property:
- Old regime: Loss up to ₹2 lakh can be set off against salary and other income in the same year. Any excess loss is carried forward for 8 years and can only be set off against house property income.
- New regime: Loss from house property cannot be set off against other heads of income.
TDS on Rent: Section 194IB
If you receive rent above ₹50,000 per month from an individual or HUF tenant (not a company), your tenant is required to deduct TDS at 5% on the annual rent at the time of payment (or at the end of the financial year / tenancy, whichever is earlier). Check your Form 26AS to verify the TDS credited against your PAN.
Filing Your ITR
Rental income must be reported in ITR-1 (if only one house property) or ITR-2 (if multiple properties or capital gains). Fill in Schedule HP with property details, GAV, municipal taxes, and deductions. Pre-filled data from AIS may show the rent — always verify it against your actual rent agreements.
Conclusion
Taxing rental income in India is more nuanced than it first appears. The 30% standard deduction and unlimited home loan interest deduction (under the old regime) can substantially reduce your taxable rental income. Whether you stay in the old or new regime, accurate record-keeping of rent receipts, municipal tax payments, and loan statements is essential. A property earning ₹3 lakh in rent may result in near-zero or even negative taxable house property income once all legitimate deductions are applied.
These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.
Frequently asked questions
Is the 30% standard deduction on rental income available under the new tax regime?+
No. The 30% standard deduction under Section 24(a) is available only under the old tax regime. Under the new regime, you can deduct municipal taxes paid but not the standard deduction or home loan interest for set-off against other income.
What if my property is vacant for six months of the year?+
If the property was not let out for the full year, GAV is computed only on the rent received for the period it was actually rented. For the vacant period, the GAV can be taken as nil if you can demonstrate genuine vacancy.
Can I deduct maintenance charges paid to a housing society from rental income?+
Maintenance charges are not separately deductible. The flat 30% standard deduction is meant to cover all such expenses including repairs, maintenance, and collection charges — no itemised bills are required or accepted.
My tenant is a company. Does TDS still apply?+
Yes, but under Section 194I (not 194IB). Companies must deduct TDS at 10% on rent exceeding ₹2.4 lakh per year for commercial or residential premises. The TDS should appear in your Form 26AS.
I have two houses — how is the second one taxed?+
From FY 2019-20, you can declare two self-occupied properties as nil annual value. A third property is deemed let-out and taxed at deemed rental value even if vacant. If you actually rent out one of the two, normal rental income tax rules apply to the rented property.
Try the calculators
Keep reading
- Section 24b: Home Loan Interest Deduction Explained
A ₹2 lakh deduction on home loan interest sounds straightforward — until you check whether your property actually qualifies.
- What Is Form 26AS? Your Complete Tax Credit Statement Explained
Form 26AS is the one document that knows everything the government knows about your income — always reconcile before you file.
- How Much House Can I Afford?
Your income sets a budget, but your debts, down payment, and interest rate decide the actual price tag — here is how they fit together.
Elena writes about taxes and the money side of running a small business. She’s on a mission to make VAT, margins, and break-even points feel a lot less scary.