Rent is taxed under "Income from House Property". Taxable income = Net Annual Value (rent − municipal taxes) − 30% standard deduction − home-loan interest. For a let-out property the interest deduction has no upper cap; a self-occupied property is capped at ₹2,00,000. The net figure is added to your other income and taxed at your slab rate. TDS applies under Section 194-IB at 5% where an individual tenant pays rent above ₹50,000 a month.
How Rental Income Tax Is Calculated
Under the Income-tax Act 2025 (in force from AY 2026-27), income from a let-out house is computed in four steps. The old Section 24(b) interest deduction and Section 23/24 mechanics continue with renumbered sections.
- Gross Annual Value (GAV): the higher of actual rent received/receivable or the fair rent of a comparable property in the same locality.
- Net Annual Value (NAV): GAV minus municipal/property taxes actually paid by the owner during the year (not taxes borne by the tenant).
- 30% standard deduction: a flat 30% of NAV for repairs, maintenance and collection — allowed regardless of actual spend, and no separate repair deduction on top.
- Home-loan interest: actual interest paid or accrued; no limit for a let-out property. Pre-construction interest is allowed in 5 equal instalments from the year of completion.
From AY 2026-27 the new tax regime applies unless you opt out. The house-property computation (30% standard deduction and let-out interest) is the same under both regimes, but a house-property loss cannot be set off against other income under the new regime — that set-off is available only if you opt for the old regime.
Rental Income Tax — Worked Example
A residential flat let at ₹25,000/month and a shop let at ₹60,000/month, each with a home loan. Only municipal taxes paid by the owner are deducted before the 30% standard deduction.
Residential flat · ₹25,000/month
Shop · ₹60,000/month
The taxable figure is added to your salary/business income and charged at your slab rate. Under the new regime (default), tax is nil up to ₹12,00,000 of total taxable income after the Section 87A rebate, so modest rental income often carries no extra tax for a salaried owner.
Want your exact tax on rent worked out across both regimes?
Use the Income Tax Calculator →House Property Deductions — Self-Occupied vs Let-Out
The deductions differ sharply between a self-occupied home and a rented (let-out or deemed let-out) property.
| Item | Self-Occupied | Let-Out Property |
|---|---|---|
| Net Annual Value | Nil (deemed zero) | GAV − municipal taxes |
| 30% standard deduction | N/A · NAV nil | 30% of NAV |
| Home-loan interest | Up to ₹2,00,000/yr | No upper limit |
| Pre-construction interest | 5 instalments (within ₹2L cap) | 5 instalments (no cap) |
| Municipal taxes | Not deductible | Deductible if paid |
| Repairs / maintenance | Not separate | Covered in 30% flat deduction |
Interest deduction for a self-occupied house is available only under the old regime; the new regime does not allow the self-occupied interest deduction. Verify current sections on incometax.gov.in before filing.
You can reduce GAV only by municipal/property taxes you actually paid during the year as the owner. Taxes due but unpaid, or taxes paid by the tenant, are not deductible — a common reason assessees over-state NAV and get a mismatch notice.
Loss From House Property — Set-Off Rules
When home-loan interest exceeds the net rent, the house-property head shows a loss. Under the old regime this loss can be set off against other income (salary, business, etc.) up to ₹2,00,000 a year; any excess is carried forward for 8 assessment years and set off only against future house-property income.
- Loss set-off against other heads is capped at ₹2,00,000 per year (old regime only).
- Unabsorbed loss carries forward for 8 assessment years, set off only against house-property income.
- For a self-occupied home, interest above ₹2,00,000 is a dead loss — it cannot be carried forward.
- Under the new regime, house-property loss cannot be set off against salary or other heads.
TDS on Rent — Section 194-IB vs 194-I
Depending on who the tenant is, TDS on rent is deducted before payment and the landlord claims credit via Form 26AS / AIS.
| Provision | Who Deducts | Threshold | Rate | Form |
|---|---|---|---|---|
| Section 194-I | Persons other than individual/HUF, or tax-audited individual/HUF | Annual rent > ₹2,40,000 | 10% land/building · 2% plant & machinery | Form 26Q |
| Section 194-IB | Individual/HUF tenant not under tax audit | Monthly rent > ₹50,000 | 5% once a year | Form 26QC + 16C |
Under 194-IB the tenant deducts once — in the last month of tenancy or the financial year — deposits via Form 26QC and issues Form 16C within 15 days.
Tenant deducting TDS, or a landlord claiming the credit? Get it filed right.
Talk to a Tax Expert →Frequently Asked Questions
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