How rental income is taxed
Updated 11 October 2026
Rent from a house, flat, shop or office is taxed under the head "income from house property". You start with the rent, subtract the municipal taxes you paid, take off a flat 30% for repairs and upkeep, and then subtract interest on any loan taken for the property. What is left is added to your other income and taxed at your slab rate.
How to calculate income from house property
- Gross annual value: the rent for the year. For a let-out property this is normally the rent you receive or are owed, or the rent the property could reasonably fetch if that is higher.
- Minus municipal taxes (property tax) that you, the owner, actually paid during the year. The result is the net annual value.
- Minus 30% of the net annual value. This standard deduction is flat: you get it whether you spent more or less on repairs, and repairs, painting or brokerage are not deducted separately.
- Minus interest on a home loan taken to buy, build or repair the property. For a let-out property there is no upper limit on this interest.
These deductions were in section 24 of the 1961 Act and are in section 22 of the 2025 Act. Repayment of the loan principal is not deducted here; in the old regime it may count under section 80C. More in home loan tax benefits.
Gross annual value: ₹30,000 × 12 = ₹3,60,000
Minus property tax: ₹3,60,000 − ₹12,000 = ₹3,48,000 (net annual value)
Minus 30%: ₹3,48,000 − ₹1,04,400 = ₹2,43,600
Minus loan interest: ₹2,43,600 − ₹1,50,000 = ₹93,600
Anil adds ₹93,600 to his income. If his top slab is 20%, the tax on it is ₹18,720, plus 4% cess = ₹19,469 (rounded).
If his loan interest were ₹3,00,000 instead, the result would be a loss of ₹56,400. In the old regime he could set this off against his salary; in the new regime he could not.
Old regime vs new regime
| Item | Old regime | New regime |
|---|---|---|
| 30% standard deduction on rent | Yes | Yes |
| Interest on a loan for a let-out property | Yes, no limit | Yes, no limit |
| Loss from house property set off against salary or other income | Up to ₹2,00,000 a year; the rest carried forward for 8 years against house property income | Not allowed |
| Interest on a loan for a home you live in | Up to ₹2,00,000 | Not allowed |
A home you live in yourself, up to two homes, has a nil annual value, so it is not taxed. A third home that you keep for yourself is treated as let out and taxed on the rent it could reasonably fetch, even though you receive nothing. See old vs new regime.
Special cases
- Interest before the building was ready: interest paid on the loan before construction was completed is deducted in five equal parts, starting with the year in which construction is completed. For a let-out property there is no cap on it.
- Vacant months: if the property stood empty for part of the year even though you tried to let it, the annual value is the rent you actually received, if that is lower than the rent it could reasonably fetch.
- Rent arrears: arrears from a rent increase, or rent recovered from an old tenant, are taxed in the year you receive them, after a 30% deduction, even if you no longer own the property.
TDS on rent
Your tenant may have to deduct TDS from the rent:
- Individual or HUF tenants who are not liable to a tax audit and pay more than ₹50,000 a month deduct 2% (section 194-IB of the 1961 Act; the rate was cut from 5% from 1 October 2024). They deduct it once a year, from the rent for the last month of the year or of the tenancy.
- Businesses and other tenants deduct 10% on rent for land or buildings when the rent exceeds ₹50,000 for a month (section 194-I).
TDS is not an extra tax. It appears in your Annual Information Statement and is subtracted from the tax you owe. Tenants who claim HRA must give their employer the landlord's PAN if the rent is over ₹1 lakh a year, so expect to be asked for yours. GST is a separate question: see GST on rent.
Advance tax and which form to file
Your employer does not deduct tax on rent unless you declare it to them. If your total tax after TDS for the year is ₹10,000 or more, pay advance tax in instalments. Salaried people with one house property can usually file ITR-1; with more than one property, or a loss to carry forward, you need ITR-2. See which ITR form, and check your total with the income tax calculator.