Is Rental Income Taxable in India?
Yes. If you own a house, flat or commercial property and earn rent by letting it out, the rental income is taxable under the head “Income from House Property” in your income tax return. The good news is that the Income Tax Act allows you to claim significant deductions against this income — often reducing your taxable rental income by 30-50%.
Deductions Available on Rental Income
1. Municipal Tax Deduction
Property tax (house tax) paid to the local municipal corporation is fully deductible from the Gross Annual Value to arrive at the Net Annual Value (NAV).
2. Standard Deduction of 30%
A flat 30% of the Net Annual Value is allowed as a standard deduction to cover maintenance, repairs and other property expenses — no bills required. This is the most significant deduction for rental income.
3. Home Loan Interest Deduction
If you have taken a home loan on the let-out property, the entire interest paid is deductible (no cap of ₹2 lakh that applies to self-occupied property). This often results in a loss from house property, which can be set off against other income up to ₹2 lakh per year. Unabsorbed losses can be carried forward for 8 years.
Worked Example — Rental Income Tax Calculation
| Item | Amount |
|---|---|
| Annual rent received | ₹3,00,000 |
| Less: Municipal tax paid | – ₹15,000 |
| Net Annual Value (NAV) | ₹2,85,000 |
| Less: Standard deduction (30% of NAV) | – ₹85,500 |
| Less: Home loan interest | – ₹80,000 |
| Taxable Rental Income | ₹1,19,500 |
In this example, annual rent of ₹3 lakh is reduced to just ₹1.19 lakh in taxable income after deductions.
TDS on Rental Income
If annual rent exceeds ₹2,40,000 (for FY 2025-26), the tenant must deduct TDS at 10% under Section 194-I before paying rent. From FY 2026-27 under the new Income Tax Act 2025, this threshold is raised to ₹6,00,000 per year, so tenants paying rent below ₹50,000/month no longer need to deduct TDS.
Self-Occupied Property — Tax on Deemed Rental Income
If you own more than two houses, only two can be treated as self-occupied (zero deemed income). For any additional houses (third house onwards), even if they are vacant, a notional rent is deemed as income and taxed accordingly. You can claim home loan interest and 30% standard deduction against this deemed income.
Which ITR to File for Rental Income?
You cannot use ITR-1 if you have more than one house property or if you have a loss from house property. Use ITR-2 if you’re salaried with rental income and no business income. Rental income goes under “Schedule HP” in the ITR form.