Tax on Rental Income in India: 30% Standard Deduction, Home Loan Interest and Loss Set-off

Tax on rental income from a building you own is generally calculated under “Income from House Property”, after deducting eligible municipal taxes, a 30% standard deduction and qualifying loan interest. For FY 2025-26 / AY 2026-27, the Income-tax Act, 1961 applies. Both tax regimes allow these deductions for let-out property, but their loss set-off rules differ significantly, especially where home-loan interest exceeds rental income.

When is rent taxed as income from house property?

Rent from an owned flat, house, shop or office ordinarily falls under house-property income, whether the tenant uses it for residential or commercial purposes.

Sec. 22 to Sec. 27 Income-tax Act govern this head. Bare letting normally remains house-property income even for commercial premises. Property occupied for your own taxable business or profession is excluded.

Subletting income is different because the recipient is not the owner. PG accommodation, serviced apartments and inseparable letting of buildings with equipment may require business-income or other-income treatment, depending on the arrangement.

How do you calculate Gross Annual Value and Net Annual Value?

For a let-out property, calculate Gross Annual Value first, then subtract municipal taxes borne and actually paid by the owner to arrive at Net Annual Value.

Under Sec. 23 Income-tax Act, Gross Annual Value (GAV) is broadly the higher of expected rent and actual rent received or receivable, subject to vacancy and eligible unrealised-rent adjustments.

Expected rent generally references the higher of municipal value and fair rent, capped by standard rent where rent-control law applies. If qualifying vacancy causes actual rent to fall below expected rent, actual rent can become GAV. Unrealised rent is excluded only where Rule 4 Income-tax Rules conditions are met.

Net Annual Value (NAV) = GAV − eligible municipal taxes actually paid.

For example, BBMP property tax qualifies if borne and paid by the owner during FY 2025-26, including eligible arrears paid that year. Unpaid taxes or taxes borne and paid by the tenant do not qualify.

Which deductions can a landlord claim?

Sec. 24 Income-tax Act allows a 30% deduction from NAV and qualifying interest on borrowed capital.

Deduction	Let-out property treatment	Important restriction
Standard deduction, Sec. 24(a) Income-tax Act	30% of NAV under either regime	No repair bills required
Loan interest, Sec. 24(b) Income-tax Act	Actual qualifying interest under either regime	No monetary ceiling on the deduction itself; loss restrictions apply
Pre-construction interest, Sec. 24(b) Income-tax Act	Five equal annual instalments	Starts in the financial year of acquisition or construction completion

The 30% deduction applies regardless of actual repair, maintenance or insurance expenditure. Society maintenance, painting and letting brokerage are generally not separately deductible from house-property income.

Interest must relate to borrowing for acquisition, construction, repair, renewal or reconstruction. Retain loan statements and interest certificates. Principal repayments are not deductible under Sec. 24 Income-tax Act.

Pre-construction interest broadly covers the eligible period before the financial year of acquisition or completion. Its instalment is claimed alongside eligible current-year interest, subject to applicable restrictions.

How do the old and new regimes treat rental losses?

The old regime permits limited set-off against other income, while the new regime prohibits that cross-head adjustment.

Issue	Old regime	New regime
Let-out property’s 30% deduction	Allowed	Allowed
Qualifying let-out loan interest	Allowed without a deduction ceiling	Allowed without a deduction ceiling
Current-year adjustment against another property’s income	Allowed	Allowed
Net house-property loss against salary or another head	Up to ₹2,00,000 annually	Not allowed
Remaining current-year loss carried forward	Up to eight assessment years	Not allowed
Self-occupied property interest	Subject to statutory conditions and limits	Not allowed

The ₹2,00,000 cross-head limit under Sec. 71(3A) Income-tax Act applies to the taxpayer’s aggregate house-property loss, not separately to each property. Under the old regime, the unabsorbed balance can be carried forward under Sec. 71B Income-tax Act for adjustment only against house-property income.

Under Sec. 115BAC(2) and Sec. 115BAC(3) Income-tax Act, a remaining current-year house-property loss cannot reduce another head’s income or be carried forward. Current-year adjustment between properties remains available.

Compare the complete return, not just rental deductions, using our income tax calculator.

What does a rental-income calculation look like in rupees?

A financed rental property can generate a taxable loss even when the landlord receives rent throughout the year.

Priya owns a Whitefield flat rented at ₹35,000 monthly. During FY 2025-26, she paid ₹18,000 in BBMP property tax and incurred ₹4,20,000 qualifying home-loan interest. Assume expected rent does not exceed actual rent.

Item	Amount
Annual rent: 12 × ₹35,000	₹4,20,000
Less: municipal taxes paid	(₹18,000)
NAV	₹4,02,000
Less: 30% standard deduction	(₹1,20,600)
Less: interest under Sec. 24(b) Income-tax Act	(₹4,20,000)
House-property loss	(₹1,38,600)

Under the old regime, Priya can set off the full ₹1,38,600 against salary, assuming sufficient income. If the entire deduction reduces income taxed at 30%, the saving is about ₹43,243 including 4% cess, ignoring surcharge and rebate effects.

Under the new regime, assuming no other house-property income, this loss cannot reduce salary or be carried forward. Nevertheless, lower slab rates could still make the new regime better overall.

What happens to self-occupied, vacant and builder-held properties?

Up to two qualifying houses can have nil annual value, but vacancy alone does not exempt every additional property.

For FY 2025-26, Sec. 23(2) Income-tax Act covers an owner-occupied residence and a house the owner cannot actually occupy for any reason. The nil-value option remains limited to two houses; an actually let-out property does not qualify.

An additional house may be deemed let out and taxed on expected rent. Distinguish this from vacancy relief for a genuinely let-out property.

Under the old regime, self-occupied acquisition or construction interest can qualify for an aggregate ₹2,00,000 limit where statutory conditions are satisfied, including the relevant loan-date and five-year completion requirements. Otherwise, the applicable ceiling may be ₹30,000; repair-related borrowing generally attracts that lower ceiling. The new regime disallows self-occupied interest.

Under Sec. 23(5) Income-tax Act, qualifying unsold builder inventory receives nil annual value for up to two years from the end of the financial year in which the competent authority issues the completion certificate, provided it remains unlet.

When must tenants deduct TDS on rent?

TDS depends on the tenant’s category, monthly rent and the landlord’s residential status.

For payments to resident landlords:

• Sec. 194-IB Income-tax Act: Individuals and HUFs outside Sec. 194-I coverage deduct 2% where rent exceeds ₹50,000 per month or part of a month.
• Sec. 194-I Income-tax Act: Covered tenants, including companies and specified individuals/HUFs, generally deduct 10% for land or building rent. From 1 April 2025, the threshold is ₹50,000 for a month or part of a month.

Non-resident landlords require separate analysis under Sec. 195 Income-tax Act. Reconcile TDS certificates with Form 26AS and AIS, declare gross taxable rent, and claim eligible credit. See our TDS on rent guide.

How do joint owners report rental income?

Co-owners with definite, ascertainable shares generally report their respective income separately under Sec. 26 Income-tax Act.

Each claims the 30% deduction on their share and qualifying interest attributable to their borrowing. Interest is not automatically split equally merely because the loan is joint. Document ownership, funding and repayment obligations.

Genuine co-ownership can improve family tax efficiency, but transfers to a spouse or minor may trigger clubbing provisions.

How SP & SC helps

SP & SC Legal and Taxation Services, Bengaluru, reviews rental calculations, loan deductions, co-ownership, TDS credits and regime comparisons.

Our fees are a fixed quote after reviewing the case, agreed before work begins. Contact us with your rental agreement, property-tax receipts and loan statements.

Frequently asked questions

Is a refundable security deposit taxable?

Normally, no. It is repayable, not rental income, unless subsequently appropriated as rent or otherwise becoming taxable.

Is advance rent or a non-refundable deposit taxable immediately?

Advance rent generally relates to the period for which rent becomes receivable. A non-refundable deposit requires examination of its substance; it is not automatically tax-free.

Does commercial rent receive the 30% deduction?

Yes, where it is assessed as house-property income rather than business income.

Does a furnished apartment automatically produce business income?

No. Substantial services and inseparable letting arrangements can change the classification, but furnishing alone does not decide it.

Can I deduct actual repairs instead of 30%?

No. Under house-property computation, Sec. 24(a) Income-tax Act provides the statutory 30% deduction, not a choice to claim higher actual expenses.