Income Tax on Rental Income India 2026 — Section 24, 30% Deduction, TDS Rules | RushTax Blog

If you own a property and earn rent from it, that income is taxable under the head "Income from House Property" in India. The good news: the tax law allows generous deductions that can significantly reduce your taxable rental income. Here is the complete guide for FY 2025-26.

How Rental Income Is Taxed — The Basic Framework

Rental income is not taxed on the gross rent received. The Income Tax Act uses a specific formula:

Gross Annual Value (GAV) → Less: Municipal taxes paid = Net Annual Value (NAV) → Less: Standard deduction (30% of NAV) → Less: Home loan interest (Section 24(b)) = Taxable Income from House Property

This taxable amount is added to your total income and taxed at your slab rate.

Step 1 — Calculate Gross Annual Value (GAV)

GAV is the higher of:

Actual rent received (annual)
Expected rent (municipal valuation or fair market rent, whichever is higher)

Example:

Actual rent: ₹20,000/month = ₹2,40,000/year
Municipal valuation: ₹2,00,000/year
Fair market rent: ₹2,20,000/year
GAV = ₹2,40,000 (actual rent is highest)

Vacancy: If the property was vacant for part of the year, GAV is reduced proportionally for the vacant period.

Step 2 — Deduct Municipal Taxes

Deduct the actual municipal taxes (property tax) paid during the year from GAV to arrive at NAV.

Important: Only taxes actually paid during the year are deductible, not taxes due but unpaid.

Example:

GAV: ₹2,40,000
Municipal tax paid: ₹12,000
NAV: ₹2,28,000

Step 3 — Standard Deduction (30% of NAV)

A flat 30% deduction on NAV is allowed under Section 24(a) to cover repairs, maintenance, insurance, and other property expenses. This is available regardless of actual expenses incurred.

Example:

NAV: ₹2,28,000
Standard deduction (30%): ₹68,400
NAV after standard deduction: ₹1,59,600

You do not need to submit any bills or receipts for this deduction.

Step 4 — Home Loan Interest (Section 24(b))

If you have taken a home loan for the rented property, the interest paid is deductible under Section 24(b):

Property Type	Maximum Deduction
Let-out property	No limit — full interest deductible
Self-occupied property	₹2,00,000 per year
Under construction (pre-possession)	Deductible in 5 equal instalments after possession

Example:

NAV after standard deduction: ₹1,59,600
Home loan interest paid: ₹1,20,000
Taxable income from house property: ₹39,600

For let-out properties, there is no cap on interest deduction — this is a significant advantage over self-occupied properties.

Loss from House Property

If your home loan interest exceeds your rental income (after deductions), you have a loss from house property. This loss can be:

Set off against other income heads (salary, business) up to ₹2,00,000 per year
The remaining loss is carried forward for 8 years and set off against future house property income

Example:

Rental income after deductions: ₹50,000
Home loan interest: ₹3,00,000
Loss from house property: ₹2,50,000
Set off against salary: ₹2,00,000 (maximum)
Carried forward: ₹50,000

Two Properties — One Self-Occupied, One Let-Out

If you own two properties:

You can declare one as self-occupied (deemed annual value = nil, no rental income)
The other is treated as let-out (actual rent or expected rent, whichever is higher)

From FY 2019-20, you can declare two properties as self-occupied (both with nil annual value). Any additional property is deemed let-out.

TDS on Rent — Section 194I

If your tenant is a company, firm, or individual/HUF with accounts subject to tax audit, they must deduct TDS on rent:

Type of Rent	TDS Rate	Threshold
Land, building, furniture	10%	Rent > ₹6,00,000/year (₹50,000/month)
Plant and machinery	2%	Rent > ₹6,00,000/year

Section 194IB (for individual/HUF tenants not subject to tax audit):

TDS at 5% if monthly rent exceeds ₹50,000
Deducted once a year (last month of tenancy or March)
Filed via Form 26QC (not regular TDS return)

As a landlord, the TDS deducted by your tenant appears in your Form 26AS. Claim this as credit when filing your ITR.

GST on Rental Income

Residential property rented for residential use: Exempt from GST

Commercial property rented to a registered business: 18% GST if your annual rental income exceeds ₹20L (GST registration threshold). You must charge GST on rent invoices and file GST returns.

Residential property rented to a registered business for commercial use: 18% GST under RCM (Reverse Charge Mechanism) — the tenant pays GST, not the landlord.

Which ITR Form to Use

Situation	ITR Form
Salaried + one house property income	ITR-1 (if total income ≤ ₹50L)
Multiple properties or income > ₹50L	ITR-2
Rental income treated as business income	ITR-3

Note: If you own more than one house property, you cannot use ITR-1. Use ITR-2.

Rental Income as Business Income

In some cases, rental income may be taxed as business income (not house property income):

Systematic letting of multiple properties with services (like a hotel or PG)
Letting of commercial property with significant services

If treated as business income, you can deduct actual expenses (maintenance, depreciation, staff costs) instead of the flat 30% standard deduction.

Advance Tax on Rental Income

If your total tax liability exceeds ₹10,000, pay advance tax in four instalments. Rental income is predictable (monthly rent), so estimate it accurately to avoid interest under Section 234B/234C.

Frequently Asked Questions

Is rental income from a jointly owned property split between owners?

Yes. If a property is jointly owned, rental income is split in the ownership ratio and each co-owner reports their share in their individual ITR.

Can I deduct society maintenance charges from rental income?

No. Society maintenance charges paid by the landlord are not separately deductible. The 30% standard deduction is meant to cover all such expenses.

What if I receive advance rent or security deposit?

Security deposits (refundable) are not taxable. Advance rent received for future periods is taxable in the year of receipt, not the year it relates to.

Can NRIs claim deductions on rental income from Indian property?

Yes. NRIs can claim the 30% standard deduction and home loan interest deduction. TDS on rent paid to NRIs is 30% (Section 195), which the tenant must deduct.

Own rental property and need help with ITR-2 filing? I handle house property income, home loan interest, and TDS credit reconciliation. Starting ₹499 via WhatsApp.

How Rental Income Is Taxed — The Basic Framework

Rental income is not taxed on the gross rent received. The Income Tax Act uses a specific formula:

This taxable amount is added to your total income and taxed at your slab rate.

Step 1 — Calculate Gross Annual Value (GAV)

GAV is the higher of:

Actual rent received (annual)
Expected rent (municipal valuation or fair market rent, whichever is higher)

Example:

Actual rent: ₹20,000/month = ₹2,40,000/year
Municipal valuation: ₹2,00,000/year
Fair market rent: ₹2,20,000/year
GAV = ₹2,40,000 (actual rent is highest)

Vacancy: If the property was vacant for part of the year, GAV is reduced proportionally for the vacant period.

Step 2 — Deduct Municipal Taxes

Deduct the actual municipal taxes (property tax) paid during the year from GAV to arrive at NAV.

Important: Only taxes actually paid during the year are deductible, not taxes due but unpaid.

Example:

GAV: ₹2,40,000
Municipal tax paid: ₹12,000
NAV: ₹2,28,000

Step 3 — Standard Deduction (30% of NAV)

A flat 30% deduction on NAV is allowed under Section 24(a) to cover repairs, maintenance, insurance, and other property expenses. This is available regardless of actual expenses incurred.

Example:

NAV: ₹2,28,000
Standard deduction (30%): ₹68,400
NAV after standard deduction: ₹1,59,600

You do not need to submit any bills or receipts for this deduction.

Step 4 — Home Loan Interest (Section 24(b))

If you have taken a home loan for the rented property, the interest paid is deductible under Section 24(b):

Property Type	Maximum Deduction
Let-out property	No limit — full interest deductible
Self-occupied property	₹2,00,000 per year
Under construction (pre-possession)	Deductible in 5 equal instalments after possession

Example:

NAV after standard deduction: ₹1,59,600
Home loan interest paid: ₹1,20,000
Taxable income from house property: ₹39,600

For let-out properties, there is no cap on interest deduction — this is a significant advantage over self-occupied properties.

Loss from House Property

If your home loan interest exceeds your rental income (after deductions), you have a loss from house property. This loss can be:

Set off against other income heads (salary, business) up to ₹2,00,000 per year
The remaining loss is carried forward for 8 years and set off against future house property income

Example:

Rental income after deductions: ₹50,000
Home loan interest: ₹3,00,000
Loss from house property: ₹2,50,000
Set off against salary: ₹2,00,000 (maximum)
Carried forward: ₹50,000

Two Properties — One Self-Occupied, One Let-Out

If you own two properties:

You can declare one as self-occupied (deemed annual value = nil, no rental income)
The other is treated as let-out (actual rent or expected rent, whichever is higher)

From FY 2019-20, you can declare two properties as self-occupied (both with nil annual value). Any additional property is deemed let-out.

TDS on Rent — Section 194I

If your tenant is a company, firm, or individual/HUF with accounts subject to tax audit, they must deduct TDS on rent:

Type of Rent	TDS Rate	Threshold
Land, building, furniture	10%	Rent > ₹6,00,000/year (₹50,000/month)
Plant and machinery	2%	Rent > ₹6,00,000/year

Section 194IB (for individual/HUF tenants not subject to tax audit):

TDS at 5% if monthly rent exceeds ₹50,000
Deducted once a year (last month of tenancy or March)
Filed via Form 26QC (not regular TDS return)

As a landlord, the TDS deducted by your tenant appears in your Form 26AS. Claim this as credit when filing your ITR.

GST on Rental Income

Residential property rented for residential use: Exempt from GST

Commercial property rented to a registered business: 18% GST if your annual rental income exceeds ₹20L (GST registration threshold). You must charge GST on rent invoices and file GST returns.

Residential property rented to a registered business for commercial use: 18% GST under RCM (Reverse Charge Mechanism) — the tenant pays GST, not the landlord.

Which ITR Form to Use

Situation	ITR Form
Salaried + one house property income	ITR-1 (if total income ≤ ₹50L)
Multiple properties or income > ₹50L	ITR-2
Rental income treated as business income	ITR-3

Note: If you own more than one house property, you cannot use ITR-1. Use ITR-2.

Rental Income as Business Income

In some cases, rental income may be taxed as business income (not house property income):

Systematic letting of multiple properties with services (like a hotel or PG)
Letting of commercial property with significant services

If treated as business income, you can deduct actual expenses (maintenance, depreciation, staff costs) instead of the flat 30% standard deduction.

Advance Tax on Rental Income

If your total tax liability exceeds ₹10,000, pay advance tax in four instalments. Rental income is predictable (monthly rent), so estimate it accurately to avoid interest under Section 234B/234C.

Frequently Asked Questions

Is rental income from a jointly owned property split between owners?

Yes. If a property is jointly owned, rental income is split in the ownership ratio and each co-owner reports their share in their individual ITR.

Can I deduct society maintenance charges from rental income?

No. Society maintenance charges paid by the landlord are not separately deductible. The 30% standard deduction is meant to cover all such expenses.

What if I receive advance rent or security deposit?

Security deposits (refundable) are not taxable. Advance rent received for future periods is taxable in the year of receipt, not the year it relates to.

Can NRIs claim deductions on rental income from Indian property?

Yes. NRIs can claim the 30% standard deduction and home loan interest deduction. TDS on rent paid to NRIs is 30% (Section 195), which the tenant must deduct.

Own rental property and need help with ITR-2 filing? I handle house property income, home loan interest, and TDS credit reconciliation. Starting ₹499 via WhatsApp.