Rental Income Tax in India: 30% Deduction, Municipal Tax and Loan Interest
Last updated: 12 October 2026
Quick answer: Rental income in India is taxed under 'income from house property'. Start with the annual value, deduct municipal taxes the owner actually paid to get net annual value, then claim a flat 30% standard deduction and eligible home-loan interest. The balance is added to your income and taxed at your slab rate.
Last updated: 12 October 2026 Quick answer: Rental income in India is taxed under 'income from house property'. Start with the annual value, deduct municipal taxes the owner actually paid to get net annual value, then claim a flat 30% standard deduction and eligible home-loan interest. The balance is added to your income and taxed at your slab rate. Key takeaways Flat 30%: the standard deduction is 30% of net annual value, whatever you actually spend on repairs. Municipal tax: deductible only in the year the owner actually pays it. Loan interest, not EMI: only the interest part is deductible; principal is not part of this calculation. Self-occupied home: the ₹2 lakh interest deduction is available only under the old regime. Losses: in the old regime a house-property loss can reduce other income by up to ₹2 lakh a year; the new regime does not allow that set-off. Rental income can provide regular cash flow, but the amount credited by a tenant is not necessarily the amount on which tax is calculated. For property treated as a house property under the applicable rules, the calculation generally begins with the property’s annual value and then allows specified deductions. Accurate ownership and payment records make the return easier to prepare and support. The basic calculation framework Determine annual value. Consider the rent received or receivable and the applicable expected-rent and vacancy rules for the property. The calculation may differ if the property was vacant or the rent could not be realised. Subtract municipal taxes paid by the owner. Municipal or local taxes are generally considered when they are actually paid by the owner during the relevant period and the statutory conditions are met. Keep the bill and payment receipt. Apply the standard deduction. A deduction equal to 30% of net annual value is generally available under the house-property rules. It is a statutory deduction for repairs and maintenance; actual repair bills do not usually replace or increase this standard amount. Consider eligible borrowing interest. Interest on borrowed capital used for acquisition, construction, repair or renewal may be deductible subject to the applicable rules, documentation and tax regime. Principal repayment is not the same as interest and should not be added to this calculation. In simplified form: Gross annual value – eligible municipal taxes actually paid = net annual value; standard deduction and eligible interest are then considered under the law. This is a framework, not a substitute for the full calculation. The result can be affected by co-ownership, multiple properties, vacancy, self-occupation, loss set-off rules and the chosen tax regime. Rental income tax in India in five steps: annual value, less municipal tax paid, less the 30% standard deduction, less home-loan interest, giving income from house property How ₹3.6 lakh of rent becomes ₹93,600 of taxable income Worked Example: From Rent Received to Taxable Income A flat in Pune is let out at ₹30,000 a month. The owner pays ₹12,000 of property tax during the year and ₹1.5 lakh of interest on the home loan taken to buy it. Step Amount Gross annual value (₹30,000 × 12) ₹3,60,000 Less municipal tax actually paid ₹12,000 Net annual value ₹3,48,000 Less 30% standard deduction ₹1,04,400 Less home-loan interest ₹1,50,000 Income from house property ₹93,600 The ₹93,600 is added to the owner's other income and taxed at slab rates under either regime. If the interest had been ₹3 lakh, the result would be a loss of ₹56,400. Under the old regime, a house-property loss can be set off against salary or other income up to ₹2 lakh a year, with the balance carried forward for up to 8 years; under the new regime it cannot be set off against other income. Illustrative figures only. Records to keep Registered or signed lease, tenant details and rent schedule. Bank statements or other records showing rent received and any arrears or vacancy. Municipal tax bills and proof of payment by the owner. Loan sanction letter, annual interest certificate and evidence linking borrowing to the property. Ownership share and co-owner information, along with any property-management expenses. Why bank transfers help Receiving rent through traceable banking channels creates a clear record of payment dates and amounts. It also makes it easier to reconcile rent with the lease and account for security deposits, reimbursements or arrears separately. A bank trail does not change the tax treatment, but it can improve record quality. Keep documentation for repairs and services even if those actual expenses do not form part of the 30% standard deduction calculation. Common mistakes to avoid Reporting only rent received rather than applying the statutory annual-value method. Claiming municipal taxes that were not actually paid by the owner in the relevant year. Adding actual repair expenses on top of the 30% standard deduction without a specific legal basis. Claiming the full loan EMI instead of eligible interest. Ignoring ownership shares, vacancy, or the interaction with the selected tax regime. These rules can vary with the facts and the applicable tax year. The Income-tax Act, 2025 and associated rules apply from 1 April 2026; confirm current requirements before filing. Refer to the Income Tax Department’s current return guidance and consult a tax professional for multiple properties or substantial deductions. See our tax consultation (https://www.moneynwealth.in/products/tax) page and the taxation information (https://www.moneynwealth.in/legal/taxation) on Money n Wealth. For senior citizens with deposits and rent, read our senior citizen tax planning guide (https://www.moneynwealth.in/insights/senior-citizen-tax-planning-interest-pension-rent) ; for a wider retirement framework, see the retirement corpus guide (https://www.moneynwealth.in/insights/retirement-planning-guide-india) . Related reading on Money n Wealth Senior citizen tax planning: interest, pension and rent (/insights/senior-citizen-tax-planning-interest-pension-rent) Real estate vs mutual funds for your next ₹20 lakh (/insights/real-estate-vs-mutual-funds-where-should-your-next-20-lakh-go) NRI taxation in India: rent, TDS and DTAA (/insights/nri-taxation-india-guide) Tax planning in India: old vs new regime (/insights/tax-planning-guide-india) Tax consultation at Money n Wealth (/products/tax) Frequently Asked Questions How is rental income taxed in India? Rent is taxed under income from house property. Municipal taxes paid by the owner are deducted from the annual value to get net annual value; a flat 30% standard deduction and eligible loan interest are then subtracted. The balance is added to your total income and taxed at your slab rate under the old or new regime. Can I claim repair and maintenance expenses on a rented flat? Not separately. The 30% standard deduction on net annual value is meant to cover repairs, maintenance and similar costs, and it is allowed whether you spend more or less. Society maintenance charges paid by the owner are generally not deductible on top of it, though municipal taxes actually paid are. Is home-loan interest deductible on a let-out property under the new regime? Yes. For a let-out property, interest on a loan used to buy, build or repair it is deductible from rental income under both regimes. The difference is the loss: the new regime does not allow a house-property loss to be set off against salary or other income, while the old regime allows up to ₹2 lakh a year. Is rent received by an NRI taxable in India? Yes. Rent from property in India is taxable in India for non-residents too, computed the same way. A tenant paying rent to an NRI landlord generally has to deduct TDS at 30% plus surcharge and cess. The NRI can file a return to claim the 30% deduction, loan interest and any refund of excess TDS. Do I pay tax if my property was vacant all year? If a property was let out for part of the year and vacant for the rest, the vacancy rules can reduce the annual value to the rent actually received. A house that is not let out and is not one of the up to two homes treated as self-occupied can be taxed on a notional rent. Check the facts with a tax professional. Disclaimer: General information only; not tax advice. Eligibility, annual value, deduction and loss treatment depend on the facts and law for the relevant tax year.
