Tax on Rental Income in India: How Landlords Are Taxed Under the Income-tax Act, 2025
Rent from a flat, house or shop you own is taxed as "Income from house property". You start with the annual rent, subtract municipal tax you actually paid, take a flat 30% off what is left, then deduct home loan interest on the property. The balance is taxed at your slab rate. The rules now sit in sections 20 to 24 of the Income-tax Act, 2025.
Key takeaways
- The 30% standard deduction is automatic. You don't need bills for repairs, paint or brokerage, and you can't claim those on top of it.
- Municipal tax counts only if you, the owner, actually paid it during the tax year.
- Interest on a loan for a let-out property has no upper cap against its own rent.
- Under the old regime, a house property loss can reduce your salary or other income by up to Rs 2 lakh a year. Under the new regime, it can't reduce other income at all.
- Co-owners are taxed separately on their share, and each gets their own limits.
Where the law sits now: new section numbers
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. The house property chapter kept its logic but was renumbered: "section 24(b) interest" is now section 22.
| What it covers | Income-tax Act, 2025 | Old 1961 Act |
|---|---|---|
| Rent is taxable as house property income | Section 20 | Section 22 |
| Annual value, municipal tax, vacancy, unrealised rent | Section 21 | Section 23 |
| 30% deduction and interest on borrowed capital | Section 22 | Section 24 |
| Arrears and unrealised rent received later | Section 23 | Section 25A |
| Co-owned property | Section 24 | Section 26 |
| Set-off against other heads (Rs 2 lakh cap) | Section 109 | Section 71(3A) |
| Carry forward of house property loss | Section 110 | Section 71B |
| New tax regime | Section 202 | Section 115BAC |
How rental income is calculated, step by step
Step 1: annual value
Annual value is broadly the higher of the rent the property could reasonably fetch and the rent you actually received or were owed. If the flat was let but sat empty for part of the year, and that's why actual rent fell short, the actual rent received becomes the annual value.
Rent a tenant simply never paid can be kept out of the calculation, provided the conditions in the Income-tax Rules are met. If you recover it later, it's taxed in the year you get it, even if you've sold the flat by then, and you still get 30% off that amount under section 23.
Step 2: subtract municipal tax
Property tax comes off the annual value only if you, not the tenant, paid it during the tax year. Paying three years of arrears in one year lets you deduct all of it that year; an unpaid bill gives you nothing. What's left is the net annual value. City rules on the tax itself differ; our guides to property tax in Noida and MCG property tax in Gurgaon show how two municipal bodies bill it.
Step 3: take 30% off
Section 22 allows a flat 30% of the net annual value, whatever you actually spent. It covers repairs, upkeep, brokerage and the like, so none of those, nor society maintenance charges, can be claimed separately.
Step 4: subtract home loan interest
Interest on a loan taken to buy, build, repair or rebuild the property is deductible. For a let-out property there's no Rs 2 lakh ceiling against the property's own rent, unlike a self-occupied home. Interest from the years before construction was finished is spread over five equal instalments, starting from the year the property is completed. Principal repayment is not a house property deduction; see our guide to home loan tax benefits.
A worked example with real numbers
Say you own a flat let at Rs 35,000 a month and pay Rs 12,000 a year in property tax. You have a home loan on it, and the interest this year is Rs 3,60,000. You're in the 30% slab, so with the 4% cess your marginal rate is 31.2%.
| Line | With loan | Without loan |
|---|---|---|
| Annual rent (Rs 35,000 x 12) | Rs 4,20,000 | Rs 4,20,000 |
| Less municipal tax paid | Rs 12,000 | Rs 12,000 |
| Net annual value | Rs 4,08,000 | Rs 4,08,000 |
| Less 30% standard deduction | Rs 1,22,400 | Rs 1,22,400 |
| Less interest on loan | Rs 3,60,000 | Nil |
| Income from house property | Loss of Rs 74,400 | Rs 2,85,600 |
Without a loan, Rs 2,85,600 is added to your income. At 31.2%, that's Rs 89,107 of tax, about 21.2% of the gross rent.
With the loan, under the old regime, the Rs 74,400 loss reduces your salary income. At 31.2%, that saves you Rs 23,213 of tax this year.
With the loan, under the new regime, your rental income for the year is nil, so you pay no tax on the rent, but the Rs 74,400 loss does nothing for your salary. The saving from the old regime is gone.
When the loss is bigger than Rs 2 lakh
Push the interest to Rs 6,00,000 and the loss becomes Rs 4,08,000 minus Rs 1,22,400 minus Rs 6,00,000, a loss of Rs 3,14,400. Under the old regime, Rs 2,00,000 is set off against your salary this year under section 109. The remaining Rs 1,14,400 is carried forward under section 110 and can only be used against house property income in the next eight tax years. The cap is Rs 2 lakh no matter how many properties you own.
Old regime or new regime for a landlord
The new regime under section 202 is the default. It still gives you the 30% deduction and the interest on a let-out property against that property's rent. What it takes away is the use of a house property loss against salary, business or any other income. It also allows no interest deduction on a self-occupied home.
On carrying the loss forward, guides disagree. Most say a loss under the new regime is simply lost; a few read the law as allowing it to be carried against future rent. Plan as if it's lost, and ask your CA before relying on anything else.
So the choice matters mainly for landlords with a loan. With no loss, the regime choice turns on your other deductions, not the flat. With a loss, the old regime can be worth up to Rs 62,400 a year (Rs 2 lakh at 31.2%) on that one item. Compare your full tax bill under both before you file.
Co-owners and joint loans
If a flat is owned jointly and each owner's share is definite, like 50:50 in the sale deed, section 24 taxes each co-owner on their own share. Each claims their share of the municipal tax, 30% deduction and interest, and each has their own Rs 2 lakh set-off limit under the old regime.
Take the Rs 6,00,000 interest case with a spouse as 50% co-owner and co-borrower. Each of you has a loss of Rs 1,57,200 and can set all of it off against your own salary, where one owner alone had to carry forward Rs 1,14,400. Being a co-borrower without being a co-owner doesn't give you the deduction.
Where landlords go wrong
- Claiming the 30% and repairs too. The 30% replaces actual expenses. A separate repair claim will be disallowed.
- Deducting property tax the tenant paid. If the lease makes the tenant pay it, you can't deduct it.
- Leaving out a vacant second or third home. You can treat up to two homes as self-occupied. From the third onwards, a home is taxed on the rent it could fetch even if it's empty.
- Ignoring TDS credit. An individual tenant paying more than Rs 50,000 a month must generally deduct 2% TDS, now under section 393 of the new Act. Match it against your statement before filing, or you'll pay tax twice on that slice.
Keep the rent on paper: a registered rent agreement is the clean record if a notice ever arrives. When you eventually sell, the tax switches to capital gains, explained in our capital gains guide. To judge whether the rent is worth having at all after tax, compare it with the rental yield in your city.
Frequently asked questions
Is rental income taxable if my total income is low?
Rental income is added to your other income and taxed at your slab rate, so if your total stays under the tax-free level, you pay nothing. Under the new regime, the rebate means taxable income up to Rs 12 lakh carries no tax for a resident individual. Report the rent anyway, especially if a tenant deducted TDS you want back.
Can I claim the 30% deduction on a self-occupied flat?
No. A self-occupied home has an annual value of nil, so 30% of nil is nil. The only deduction for it is home loan interest, capped at Rs 2 lakh a year, and only under the old regime. The 30% applies only where there is an annual value to reduce, that is, let-out or deemed let-out property.
Does GST apply to residential rent I receive?
Renting a home to an individual for use as a residence is exempt from GST, so a typical landlord doesn't charge it. Commercial rent is different: a landlord whose total taxable turnover crosses the GST registration threshold must register and charge GST on shop or office rent. The income tax treatment under house property is the same either way.
My tenant paid three months' rent late, in the next financial year. When is it taxed?
If you kept it out of the first year's annual value as unrealised rent, it becomes income of the year you receive it, under section 23 of the new Act, with a 30% deduction on that amount. If you had already included it as rent receivable, you've paid tax on it once and don't pay again when the cash comes in.
Should my spouse and I split the rental income 50:50?
Only if the sale deed says each of you owns half and each of you actually paid for your share. Then each is taxed on half, gets half the deductions and has a separate Rs 2 lakh loss limit under the old regime. If the money came only from you, the rent can be clubbed with your income regardless of whose name is on the deed.
If you're weighing whether a flat will pay its way after tax, or planning a purchase in joint names, the Realty Hunting team is happy to walk through the numbers with you.
