Rental Income Tax Planning — How Rental Property is Taxed in India 2025-26

Updated: 3 June 2026 | Income Tax Act, 1961 | Section 22, 23, 24 | FY 2025-26

Rental income from house property is taxed under the head “Income from House Property”. Net Annual Value (NAV) = actual rent minus municipal taxes paid. From NAV, deduct 30% standard deduction (Section 24a) and home loan interest (Section 24b, no limit for let-out property). The remaining amount is added to your total income and taxed at your applicable slab rate. TDS applies if monthly rent exceeds ₹50,000.

30%

Flat 30% standard deduction on Net Annual Value — no proof of expenses needed
Available under both old and new tax regimes for let-out property. Home loan interest deduction also available under Section 24(b).

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Deemed Rent applies on vacant property. If you own more than 2 properties and keep a third vacant, it is treated as “deemed let-out” at fair market rent even if it earns no actual rent. Municipal taxes plus 30% deduction and loan interest still apply, but rental income is imputed at fair rent.

Step-by-Step Rental Income Calculation Formula

Here is how house property income is computed under the Income Tax Act:

STEP-BY-STEP FORMULA

Gross Annual Value → NAV → Taxable Income

1. Gross Annual Value (GAV) = Higher of (a) Actual rent received/receivable or (b) Fair rent (standard rent per Rent Control Act or market rent)

2. Net Annual Value (NAV) = GAV − Municipal taxes paid by owner during the year

3. Less: Standard Deduction = 30% of NAV [Section 24(a)]

4. Less: Home Loan Interest [Section 24(b)] — unlimited deduction for let-out property; up to ₹2L for self-occupied

5. Taxable House Property Income = NAV − 30% − Loan Interest

Residential vs Commercial Rental Income — Calculation Example

Step	Residential Flat (Annual)	Commercial Office (Annual)
Actual Rent Received	₹3,60,000 (₹30,000/mo)	₹7,20,000 (₹60,000/mo)
Fair Rent (Market Estimate)	₹3,36,000	₹7,20,000
Gross Annual Value (GAV)	₹3,60,000 (actual rent is higher)	₹7,20,000
Municipal Taxes Paid by Owner	₹18,000	₹36,000
Net Annual Value (NAV)	₹3,42,000	₹6,84,000
Less: Standard Deduction 30%	− ₹1,02,600	− ₹2,05,200
Less: Home Loan Interest (Sec 24b)	− ₹1,50,000	− ₹3,00,000
Taxable House Property Income	₹89,400	₹1,78,800
Tax at 30% slab (example)	₹26,820	₹53,640

Note: Actual tax depends on total income and applicable slab. Example assumes 30% slab and ₹1.5L home loan interest for residential, ₹3L for commercial.

TDS on Rent — Tenant’s Obligation

Section	Who Deducts TDS	Threshold	TDS Rate	TAN Required?
Section 194-IB	Individual or HUF (not under tax audit) paying rent	Monthly rent > ₹50,000	2%	No TAN needed — use PAN
Section 194-I	Company, firm, or individual/HUF under tax audit	Annual rent > ₹2.4 lakh (₹20,000/mo)	10% (land/building)	TAN required
Section 194-I	Company, firm, or individual/HUF under tax audit	Annual rent > ₹2.4 lakh (plant & machinery)	2% (plant/machinery)	TAN required

Key planning point: Claim all municipal taxes you actually paid during the year — they reduce NAV directly (rupee-for-rupee, unlike deductions). Ensure municipal tax receipts are maintained. If property was vacant for part of the year, only actual rent for occupied period is GAV — not full-year market rent.

New Tax Regime vs Old Tax Regime — Rental Income

Benefit	Old Tax Regime	New Tax Regime
Standard Deduction 30% (Sec 24a) on let-out property	Available	Available
Home loan interest (Sec 24b) on let-out property	Available (no limit)	Available (no limit)
Home loan interest (Sec 24b) on self-occupied property	Up to ₹2L	Not available
Set-off of house property loss vs other income	Up to ₹2L/year allowed	NOT allowed
Carry forward of unabsorbed house property loss	8 years	Not available
Deduction under 80C (home loan principal)	Up to ₹1.5L	Not available

Frequently Asked Questions

What is the standard deduction allowed on rental income from house property?

Section 24(a) of the Income Tax Act allows a standard deduction of 30% of Net Annual Value (NAV) — regardless of actual expenses incurred on repairs, maintenance, or insurance. This is a flat deduction available to ALL property owners. You do not need to prove actual spending. NAV is calculated as Gross Annual Value (higher of actual rent received or fair market rent) minus municipal taxes paid during the year. This 30% deduction is available under BOTH the old and new tax regimes for let-out property income.

How is house property income calculated step by step?

Step 1 — Gross Annual Value (GAV): Higher of actual rent received/receivable or fair rent (standard rent per Rent Control Act). Step 2 — Net Annual Value (NAV): GAV minus municipal taxes paid by the owner during the year. Step 3 — Deductions from NAV: (a) Standard deduction 30% of NAV under Section 24(a); (b) Home loan interest under Section 24(b) — up to ₹2 lakh for self-occupied; no limit for let-out property. Step 4 — Taxable house property income = NAV minus 30% minus loan interest. This amount is added to your total income and taxed at your applicable income tax slab rate.

When must a tenant deduct TDS on rent paid to landlord?

Under Section 194-IB, any individual or HUF (not liable for tax audit) paying rent exceeding ₹50,000 per month must deduct TDS at 2% before paying the landlord. This applies from the time of credit or payment, whichever is earlier. TDS is deducted only once a year (at the last month of tenancy or March, whichever is earlier) on total rent for the year. Under Section 194-I, any person (company, firm, or individual/HUF liable for tax audit) paying annual rent exceeding ₹2.4 lakh must deduct TDS at 10% on land/building rent. The tenant must have a TAN for Section 194-I deductions but not for Section 194-IB.

How is rental income taxed if I own multiple properties?

You can own any number of properties. Rules under multiple ownership: (1) Self-occupied: Only 2 properties can be treated as self-occupied (NIL Annual Value). From FY 2019-20, you may select any 2 properties as self-occupied. (2) Remaining properties: Must be treated as deemed let-out — Annual Value is computed at expected market rent, even if actually lying vacant. (3) Each property is computed separately for House Property income. (4) Losses from house property (excess of home loan interest over rental income) can be set off against other income up to ₹2 lakh per year under the old tax regime. Unabsorbed loss can be carried forward for 8 years.

Are deductions for rental income allowed under the new tax regime?

Under the new tax regime (Section 115BAC), standard deduction of 30% on Net Annual Value under Section 24(a) IS still available for let-out properties. Home loan interest deduction under Section 24(b) for let-out property is also available under the new regime — but with a crucial restriction: losses from house property cannot be set off against any other income head. Under the new regime, if rental income is less than home loan interest (i.e., house property shows a loss), that loss cannot reduce your taxable salary or business income. Under the old regime, such losses can offset other income up to ₹2 lakh per year.

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