Income Tax on Rental Property 2026 — House Property Income, Deductions & TDS

Updated: 3 June 2026 | Income-tax Act 2025 | House Property Head | Section 57 & Section 194-IB

Rental income is taxed under the head "Income from House Property" under the Income-tax Act 2025. Formula: Taxable income = Net Annual Value (GAV − municipal taxes) − 30% standard deduction − home loan interest (no cap for let-out property). TDS applies under Section 194-IB if monthly rent exceeds ₹50,000 (individual tenant).

30%

Flat standard deduction on Net Annual Value — no proof of expenses needed.
Plus: entire home loan interest deductible for let-out property (no ₹2L cap). Net result can be a loss — set off up to ₹2L against salary.

How Rental Income Tax is Calculated — Step by Step

Under the Income-tax Act 2025, rental income is computed under "Income from House Property" as follows:

Step 1 — Gross Annual Value (GAV): Higher of actual rent received/receivable OR fair rent of a comparable property in the same area.
Step 2 — Net Annual Value (NAV): GAV minus municipal taxes actually paid by the owner during the year.
Step 3 — Standard Deduction: 30% of NAV (fixed — covers all maintenance, repairs, and collection charges).
Step 4 — Home Loan Interest: Deduct actual interest paid/accrued. No upper limit for let-out property.
Taxable Income = NAV − 30% − Home Loan Interest

Rental Income Tax Calculation Example

Item	Residential Property	Commercial Property
Monthly Rent	₹25,000	₹60,000
Annual Rent (GAV)	₹3,00,000	₹7,20,000
Municipal Taxes Paid	₹10,000	₹30,000
Net Annual Value (NAV)	₹2,90,000	₹6,90,000
30% Standard Deduction	₹87,000	₹2,07,000
Home Loan Interest	₹1,50,000	₹2,00,000
Taxable Income	₹53,000	₹2,83,000
TDS Applicability	Sec 194-IB if rent >₹50K/month	Sec 194-I if annual rent >₹2.4L

Key Deductions Under House Property Head

Deduction	Self-Occupied	Let-Out Property
Net Annual Value	Nil (deemed zero)	GAV − Municipal Taxes
30% Standard Deduction	Not applicable (NAV = nil)	30% of NAV
Home Loan Interest (Section 57)	Up to ₹2,00,000/year	Unlimited (actual interest)
Pre-construction Interest	5 equal instalments (capped at ₹2L total)	5 equal instalments (no cap)
Municipal Taxes	Not deductible (NAV = nil)	Deductible if paid by owner
Repairs / Maintenance	Not separately allowed	Covered in 30% flat deduction

TDS on Rent — Section 194-IB vs 194-I

Two TDS provisions apply to rent under the Income-tax Act 2025:

Provision	Who Deducts	Threshold	Rate	Form
Section 194-I	Persons (not individual/HUF) or tax-audited individuals	Annual rent > ₹2,40,000	10% (land/building); 2% (plant/machinery)	Form 26Q
Section 194-IB	Individual/HUF tenants not under tax audit	Monthly rent > ₹50,000	5% (deducted once a year)	Form 26QC + Form 16C

Frequently Asked Questions

How do you calculate income from house property under the Income-tax Act 2025?

Income from house property is calculated in four steps under the Income-tax Act 2025: Step 1 — Gross Annual Value (GAV): Higher of (a) actual rent received/receivable during the year, or (b) fair rental value of a similar property in the same locality. Step 2 — Net Annual Value (NAV): GAV minus municipal taxes paid by the owner during the year (only taxes actually paid are deductible — not taxes paid by tenant). Step 3 — Standard deduction: 30% of NAV is allowed as a flat deduction for repairs, maintenance, and other expenses — regardless of actual expenditure incurred. Step 4 — Home loan interest deduction under Section 57 (formerly Section 24(b)): For a let-out property there is no upper cap on interest deduction. Taxable income = NAV − 30% standard deduction − home loan interest. Example: Rent ₹25,000/month = ₹3,00,000/year. Municipal tax paid ₹10,000. NAV = ₹2,90,000. Standard deduction 30% = ₹87,000. Interest on home loan = ₹1,50,000. Taxable income = ₹2,90,000 − ₹87,000 − ₹1,50,000 = ₹53,000.

What is the 30% standard deduction on house property income?

The 30% standard deduction is a flat deduction allowed from Net Annual Value (NAV) of a let-out property under the Income-tax Act 2025. It is meant to cover repairs, maintenance, insurance, collection charges, and all other expenses related to the property. Key points: (1) The deduction is always exactly 30% of NAV — you cannot claim more even if actual expenses are higher. (2) You cannot claim less — it is mandatory, not optional. (3) It applies only to let-out and deemed let-out properties. (4) For a self-occupied property, NAV is nil — so the 30% deduction is also nil. (5) No separate deduction for repairs, painting, or maintenance is allowed over and above the 30%.

Can I deduct home loan interest on a rented property — is there a limit?

Yes — for a let-out property under the Income-tax Act 2025, you can deduct the entire home loan interest with NO upper limit. This is different from a self-occupied property where interest deduction is capped at ₹2,00,000 per year. For let-out property: deduct actual interest paid/accrued during the year from Net Annual Value after the 30% standard deduction. Pre-construction interest: allowed in 5 equal instalments beginning from the year of completion of construction (or purchase). Note: This can result in a loss from house property (negative income). Loss from a let-out property can be set off against other income up to ₹2,00,000 per year; the remaining loss can be carried forward for 8 assessment years to be set off against house property income only.

Who deducts TDS on rent — Section 194-IB of the Income-tax Act 2025?

TDS on rent is covered under two provisions: (1) Section 194-I applies to persons other than individuals/HUFs, or individuals/HUFs whose accounts are subject to tax audit. Rate: 10% for land/building/furniture; 2% for plant and machinery. Applies when annual rent exceeds ₹2,40,000. (2) Section 194-IB applies to individual or HUF tenants NOT liable to tax audit. Rate: 5% TDS (deducted only at time of last month of tenancy or last month of financial year). Threshold: monthly rent exceeds ₹50,000. TDS is deducted only once a year — on the last rental instalment. The tenant must deposit TDS using Form 26QC and issue Form 16C to the landlord within 15 days. Landlord claims TDS credit in ITR using Form 26AS/AIS.

Can loss from house property be set off against salary or other income?

Yes — but with a cap. Under the Income-tax Act 2025, loss from house property (i.e., when interest deduction exceeds net rental income) can be set off against income from other heads (salary, business, capital gains, etc.) up to a maximum of ₹2,00,000 in the same year. The balance loss (beyond ₹2 lakh) is carried forward for up to 8 assessment years and can only be set off against future income from house property — not against salary or other income. Note: If you own multiple properties, all properties are computed separately, but the aggregate house property income or loss is treated as a single head. A self-occupied property where interest > ₹2 lakh — the excess beyond ₹2 lakh is a dead loss (cannot be carried forward).

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