Tax on Rental Income from Property

Last updated: 3 June 2026

Rental income from owned property is taxed under the head "Income from House Property". After claiming the 30% standard deduction and home loan interest, only the remaining Net Annual Value is added to your total income and taxed at your slab rate.

30%

Flat standard deduction on Net Annual Value — no receipts needed, automatically allowed under Section 24(a).

How Rental Income Is Computed Step by Step

Step 1 — Gross Annual Value (GAV): The higher of (a) actual rent received or receivable, and (b) fair market rent (what a similar property would fetch).

Step 2 — Net Annual Value (NAV): GAV minus municipal taxes or property taxes actually paid by the owner (not the tenant) during the financial year.

Step 3 — 30% Standard Deduction (Section 24a): Deduct 30% of NAV. This flat deduction covers all repairs, maintenance, and ownership costs.

Step 4 — Home Loan Interest (Section 24b): Deduct actual home loan interest paid. For let-out property: no upper limit. For self-occupied property: capped at ₹2 lakh per year.

Step 5 — Taxable Income from House Property = NAV − 30% − Loan interest. This amount is added to your total income and taxed at slab rates.

Worked Example

Calculation Step	Amount
Actual rent received per year	₹3,60,000
Fair market rent (assumed equal)	₹3,60,000
Gross Annual Value (GAV)	₹3,60,000
Less: Municipal taxes paid by owner	− ₹12,000
Net Annual Value (NAV)	₹3,48,000
Less: 30% standard deduction (Section 24a)	− ₹1,04,400
Less: Home loan interest (Section 24b)	− ₹80,000
Taxable income from house property	₹1,63,600

Self-Occupied vs Let-Out Property

Property Type	Annual Value	Standard Deduction	Loan Interest Cap
Self-occupied (up to 2 properties)	Deemed ₹0 (NAV = 0)	Not applicable (NAV is nil)	₹2,00,000/year
Let-out (rented)	Actual/fair market rent	30% of NAV	No limit
Deemed let-out (3rd+ property)	Fair market rent (notional)	30% of NAV	No limit

TDS on Rent — Sections 194I and 194-IB

Section	Who Deducts	Threshold	TDS Rate
194I	Companies, firms, individuals/HUF subject to tax audit	Annual rent > ₹2,40,000	10% (for land/building/furniture)
194-IB	Individual/HUF tenants not in tax audit	Monthly rent > ₹50,000	5% (deducted once a year or at vacation)

GST on Rental Income

Property Type	GST Applicable?	GST Rate	Registration Threshold
Residential property (house, flat)	No	Exempt	—
Commercial property (office, shop, warehouse)	Yes, if turnover > ₹20L	18%	₹20 lakh aggregate turnover

Once registered for GST, the landlord of commercial property must charge 18% GST on rent, issue tax invoices, and file GST returns monthly/quarterly.

Loss from House Property

If deductions (standard deduction + loan interest) exceed the NAV, you have a loss from house property. This loss can be set off against income from other heads (salary, business, etc.) up to ₹2 lakh per year. Any unabsorbed loss can be carried forward for 8 years and set off only against house property income in subsequent years.

Frequently Asked Questions

How is the 30% standard deduction on rental income calculated?

The 30% standard deduction under Section 24(a) is applied on the Net Annual Value (NAV), not on the rent actually received. NAV = Gross Annual Value (higher of actual rent or fair market rent) minus municipal taxes paid by the owner during the year. The 30% deduction is a flat allowance — no bills or receipts are required to claim it. It covers repairs, maintenance, insurance, and all other property-related expenses.

Can I deduct home loan interest on a let-out property without a ₹2 lakh cap?

Yes. The ₹2 lakh annual cap on home loan interest deduction under Section 24(b) applies only to self-occupied properties. For a let-out (rented) property, you can deduct the actual interest paid on the home loan with no upper limit. This means if your NAV after standard deduction is ₹3 lakh but you paid ₹5 lakh as loan interest, you can show a loss of ₹2 lakh from house property, which can be set off against other income heads (subject to the ₹2 lakh annual set-off limit).

What is the TDS rate on rent and who deducts it?

Under Section 194I, TDS is 10% on rent paid to a resident if annual rent exceeds ₹2.4 lakh — applicable when the payer is a company, firm, or individual/HUF whose accounts are tax-audited. Under Section 194-IB, individual or HUF tenants (not covered by tax audit) must deduct TDS at 5% per month if monthly rent exceeds ₹50,000 — only for the last month of tenancy or the month of vacating. TDS under 194-IB is a one-time annual deduction.

What if my tenant does not deduct TDS on rent?

The obligation to deduct TDS rests with the tenant. If TDS is not deducted, the tenant may face interest and penalty. As a landlord, you must still declare the full rental income in your ITR and pay advance tax or self-assessment tax on it. You cannot reduce your income simply because TDS was not deducted. However, you will not get a TDS credit in Form 26AS — you simply pay tax directly.

Is GST applicable on residential rental income?

No. Residential rental income is fully exempt from GST, regardless of the amount. GST applies only to commercial property rentals (office, shop, warehouse, etc.) where the landlord's aggregate turnover — including this rental — exceeds ₹20 lakh per year. If liable, GST is charged at 18% on commercial rent and the landlord must file GST returns. There is no GST registration threshold exemption available for commercial rental income exceeding ₹20 lakh.

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