India Rental Income Tax Guide 2026 — House Property, 30% Deduction & TDS

Overview — How Rental Income Is Taxed

Rental income from property in India is taxed under "Income from House Property" (Sections 22-27). The computation is formulaic and unique:

👉 Tax Classification: Income from letting out a building or land appurtenant (house property) is taxed as Income from House Property. If the letting is part of business (e.g., hotel, paying guest accommodation, commercial complex with services), it may be taxed as Business Income instead.

👉 Who Must Report: Any person who owns a property and receives rent must report it. Even rent-free properties (self-occupied) have tax implications (nil income, but interest deduction limited). Co-owners each report their share of rental income.

👉 Gross Annual Value (GAV): The starting point is the GAV — the rent that the property can reasonably be expected to fetch. For a let-out property, GAV is the higher of: (a) actual rent received/receivable, (b) fair rent (market rent for similar property), or (c) municipal value. However, if the property is vacant and actual rent is lower due to vacancy, the actual rent received is the GAV.

👉 Net Annual Value (NAV): GAV minus municipal taxes paid by the owner during the year. Municipal taxes must be actually paid (not just accrued) to be deductible. Only the portion paid by the owner (not the tenant) is deductible.

👉 Taxable Income: NAV minus 30% standard deduction (Section 24(a)) minus home loan interest deduction (Section 24(b)). The 30% standard deduction covers repairs, maintenance, insurance, and other expenses — no actual expense claim is allowed.

Computation Step by Step

Here is the formula for calculating taxable rental income:

👉 Step 1 — Gross Annual Value (GAV): Actual rent received (or receivable, if the tenant has not paid but is legally obligated). If property is vacant for part of the year and actual rent is lower, use actual rent. If property is vacant for full year — GAV is nil.

👉 Step 2 — Less: Municipal Taxes Paid: Property tax, water tax, and other local taxes paid to the municipality. Only taxes actually paid by the owner during the year (not pending) are deductible.

👉 Step 3 — Net Annual Value (NAV): GAV minus municipal taxes = NAV.

👉 Step 4 — Less: 30% Standard Deduction: 30% of NAV (not of gross rent). This covers all repairs, maintenance, insurance, and other expenses. You cannot claim actual expenses instead.

👉 Step 5 — Less: Home Loan Interest: Interest on loan taken for purchase, construction, or repair of the property. Let-out property: full interest deductible (no cap). Self-occupied: capped at INR 2,00,000 (if loan taken after 1 April 1999).

👉 Step 6 — Income from House Property: NAV - 30% - Interest = Taxable income. Can be negative (loss from house property) which can be offset against other income (subject to limits — loss up to INR 2 lakh can offset other income if self-occupied property).

👉 Example: Monthly rent = INR 40,000 (INR 4,80,000/year). Municipal taxes paid = INR 12,000. Home loan interest = INR 2,50,000/year. GAV = INR 4,80,000. NAV = INR 4,80,000 - INR 12,000 = INR 4,68,000. 30% deduction = INR 1,40,400. Interest = INR 2,50,000. Taxable income = INR 4,68,000 - INR 1,40,400 - INR 2,50,000 = INR 77,600. Tax at applicable slab rate.

Self-Occupied Property

If you live in your own home (self-occupied property), the tax treatment is simpler but restrictive:

👉 Annual Value: Nil. You are not deemed to receive any benefit from living in your own home. The GAV of a self-occupied property is taken as nil (no notional rent is taxed).

👉 Maximum Two Houses: You can treat up to two properties as self-occupied (with nil annual value). Additional properties are deemed to be let out (see below). You must choose which properties to designate as self-occupied.

👉 Interest Deduction: Home loan interest on self-occupied property is deductible up to INR 2,00,000 per property. Pre-construction interest (if applicable) can be claimed in 5 equal installments starting from the year of completion (within the INR 2 lakh limit).

👉 Loss from House Property: If interest exceeds INR 2 lakh (or if you have a loss from a let-out property), the loss can be set off against other income (salary, business income, etc.) up to INR 2,00,000 per year. Any remaining loss is carried forward for up to 8 years and can only be set off against future house property income.

Deemed Let-Out Property

If you own more than two properties, the additional ones are "deemed to be let out":

👉 Rule: If you own three or more houses, the ones beyond two are treated as if they are rented out, even if they are vacant. You must compute notional rental income based on the property's expected rent (market rent or municipal value).

👉 How It Works: The GAV for a deemed let-out property is the higher of municipal value, fair rent, or standard rent (if Rent Control Act applies). You cannot argue that the property is vacant and earns no rent. This can create a tax liability even on a vacant property.

👉 Strategy: To avoid deemed let-out treatment, designate the two properties with the lowest rental potential as self-occupied. The high-value properties (or those with the highest rent receivable) should be let-out (actual rent is used) rather than deemed let-out (notional rent).

TDS on Rent Payments

Tenants who pay rent to landlords must deduct TDS on the rent amount:

👉 Section 194-I — Rent over INR 2,40,000/year: If the tenant (individual or HUF not liable to tax audit) pays rent exceeding INR 2,40,000 in a financial year, TDS at 2% on rent for plant/machinery/equipment or 10% on rent for land/building/furniture. For individuals/HUF not subject to tax audit, TDS is deducted when total rent exceeds INR 2,40,000/year (not on each payment). The TDS rate is 5% for rent of land/building (reduced from 10% by Budget 2024) and 2% for plant/machinery.

👉 Section 194-IB — Rent over INR 50,000/month: For individuals/HUF not liable to tax audit who pay rent exceeding INR 50,000 per month (for land/building), TDS at 5% on the total annual rent (not per payment). No PAN: TDS at 20%. TDS must be deducted at the time of credit/payment and deposited within 30 days of the end of the month in which deduction is made.

👉 TDS Rates (from FY 2025-26): Rent of land/building: 5% (Section 194-I for those subject to tax audit, Section 194-IB for others). Furniture/equipment: 2%. No TDS on rent below INR 2,40,000/year (for 194-I) or INR 50,000/month (for 194-IB).

👉 TDS Credit: TDS deducted by the tenant appears in the landlord's Form 26AS and can be claimed as credit against total tax liability.

Deductions in Detail

Only the following deductions are allowed from rental income:

👉 Municipal Taxes (Section 23(1)): Property tax, water tax, sewerage tax, and other local taxes paid to municipal authorities. Only taxes actually paid by the owner during the year are deductible (not taxes due but unpaid). Municipal taxes paid by the tenant are not deductible by the owner (they are treated as part of the rent).

👉 30% Standard Deduction (Section 24(a)): A flat 30% of the Net Annual Value. This replaces all actual expenses: repairs, maintenance, painting, plumbing, insurance, society maintenance charges, property management fees, and any other day-to-day expenses. You cannot claim actual expenses for any of these items.

👉 Home Loan Interest (Section 24(b)): Interest on loans taken for purchase, construction, repair, reconstruction, or renovation of the property. Let-out property: full interest deductible (no monetary cap). Self-occupied: capped at INR 2,00,000 per property. Interest on loan taken for repairs (not original construction) is also deductible (no cap for let-out, cap for self-occupied).

👉 Pre-Construction Interest: Interest paid during the construction period (before the property is completed) can be claimed in 5 equal annual installments starting from the year of completion. The total pre-construction interest is aggregated and divided by 5. For self-occupied, this is within the INR 2 lakh cap. For let-out, there is no cap.

👉 What Is NOT Deductible: Principal repayment of home loan (deductible under Section 80C, not against rental income), insurance premiums (covered by 30% standard deduction), society maintenance charges, property management fees, legal fees for tenant disputes, depreciation (not allowed for house property), any actual expenses beyond the 30% standard deduction.

Rental Income for NRIs

Non-resident Indians (NRIs) renting out Indian property have specific considerations:

👉 Taxability: Rental income from Indian property is taxable in India regardless of the owner's residential status (since the property is located in India). The same rules (GAV → NAV → deductions → tax) apply.

👉 TDS by Tenant: The tenant must deduct TDS at 30% (or lower if DTAA rate applies) on rent paid to an NRI. Most NRIs apply for a lower TDS certificate (Section 195(2)) from the Assessing Officer to reduce the TDS rate to 5-10%. Without this, the tenant deducts 30% (plus surcharge).

👉 Tax Filing: NRIs must file an Indian tax return if rental income exceeds the basic exemption limit (INR 2.5 lakh for NRIs under old regime or INR 3 lakh under new regime). NRIs can choose either regime.

👉 Repatriation: Rental income (after tax) can be repatriated abroad through NRE/NRO accounts under FEMA. NRO account balances (including rental income) can be repatriated up to USD 1 million per financial year subject to tax clearance. Rental income deposited in NRO account is fully repatriable after payment of applicable taxes.

FAQs

How is rental income taxed in India?

Rental income is taxed under "Income from House Property." The annual value (GAV minus municipal taxes) is computed, a 30% standard deduction is applied (covering all repairs and maintenance), and home loan interest is deducted. The balance is added to your total income and taxed at your applicable slab rate.

What is the 30% standard deduction on rental income?

Section 24(a) allows a flat 30% deduction from the Net Annual Value of the property. This covers all expenses related to the property: repairs, maintenance, insurance, society charges, and any other day-to-day costs. You cannot claim actual expenses for any of these items. The 30% is calculated on NAV (after municipal taxes), not on gross rent.

Can I deduct home loan interest on a rented property?

Yes. For a let-out property, the full amount of home loan interest is deductible (no upper limit). For a self-occupied property, interest is capped at INR 2,00,000 per year. Pre-construction interest can be claimed in 5 equal installments from the year of completion.

What is TDS on rent and what is the rate?

TDS on rent must be deducted by the tenant. For individuals/HUF not subject to tax audit: TDS at 5% on total annual rent if monthly rent exceeds INR 50,000 (Section 194-IB). For others: TDS at 5% on rent for land/building if total annual rent exceeds INR 2,40,000 (Section 194-I). No TDS if rent is below these thresholds.

What happens if I own multiple self-occupied properties?

You can treat up to two properties as self-occupied (with nil annual value). Properties beyond two are "deemed let out" — you must compute notional rental income (expected rent based on market value or municipal value) and pay tax on it, even if the property is vacant.

Can I claim actual repairs instead of the 30% deduction?

No. The 30% standard deduction under Section 24(a) is mandatory. You cannot opt out and claim actual expenses. This is a deemed deduction — you get 30% regardless of whether you spent anything or spent more. For let-out properties, the 30% also covers all expenses (maintenance, repairs, insurance, etc.).

How is rental income taxed for NRIs?

NRIs pay tax on rental income from Indian property at standard slab rates (same as residents). The tenant deducts TDS (typically 30% unless lower certificate is obtained). NRIs must file ITR if rental income exceeds exemption limit. Post-tax income in NRO account can be repatriated up to USD 1 million/year.

What expenses are not deductible from rental income?

Principal repayment of home loan (deductible under Section 80C, not against rental income), actual repair expenses (replaced by 30% standard deduction), depreciation, society maintenance charges, legal fees, property management fees, and insurance premiums (all covered by 30% standard deduction). Only municipal taxes paid and home loan interest are separately deductible.