Tax on Rental Income in India: How Much You Keep (2026)
Dasadia Editorial Team · Updated July 2026
Earning rent feels like easy money — until you wonder how much of it the taxman takes. The reassuring answer is: usually far less than you fear. Indian law taxes rental income under a generous set of rules that let you write off a flat 30%, deduct your property tax, and claim your entire home-loan interest, so most landlords are taxed on only a fraction of what they collect. This 2026 guide walks through exactly how rental income is taxed, the deductions that shrink the bill, and — with a worked example — how much of your rent you actually keep.
Key takeaways
- Rental income is taxed under 'Income from House Property' — but rarely on the full rent you receive.
- You deduct municipal taxes, a flat 30% standard deduction, and home-loan interest before the balance is taxed at your slab.
- The 30% standard deduction needs no bills and applies in both the old and new tax regimes.
- Home-loan interest on a let-out property is fully deductible with no cap, in both regimes.
- The regimes differ on loss set-off: the old allows ₹2 lakh against other income plus carry-forward; the new allows neither.
- The new regime makes income up to ₹12 lakh tax-free, which can wipe out tax on modest rent.
- Tenants deduct TDS above set limits — 2% (individuals) or 10% (businesses) — which you claim back in your return.
- Residential rent for a home is GST-exempt; NRI landlords face a much higher 30% TDS under Section 195.
Source: ClearTax · Tax Garden
How rental income is taxed
Rent is not tax-free, but it is rarely taxed on the full amount you receive. Under Indian law, rental income falls under the head ‘Income from House Property’, and the tax system allows a generous set of deductions before the balance is added to your total income and taxed at your slab rate. The practical effect is that a large chunk of your rent escapes tax entirely — often 30% or more — and a home loan can shrink the taxable figure to almost nothing. The result is that, of every rupee you collect, you usually keep far more than the headline tax rates might suggest. Understanding the computation is how you make sure you keep the maximum.
Source: Income Tax Department · Vakilsearch
The calculation, step by step
The tax on rent is worked out in a short, fixed sequence: start with the annual rent, subtract the municipal taxes you paid, take a flat 30% deduction, subtract any home-loan interest, and what remains is your taxable house-property income. Here is the structure.
Each step reduces the figure that finally gets taxed — and the 30% deduction and the loan interest do most of the work.
Source: ClearTax · Tax Garden
The two big deductions: 30% standard and home-loan interest
Two deductions carry most of the tax saving, and both are worth understanding. The first is the 30% standard deduction under Section 24(a): once you have subtracted municipal taxes to reach the Net Annual Value, the law lets you deduct a flat 30% of it to cover repairs, maintenance, insurance and the like — with no bills or proof required, and whether or not you actually spent anything. It applies in both the old and new tax regimes, and it means only 70% of your net rent is ever taxable. The second is the home-loan interest deduction under Section 24(b). For a let-out property, the entire interest you pay in the year is deductible against the rent, with no upper limit — unlike a self-occupied home, where interest is capped at ₹2 lakh. On a sizeable loan, this deduction alone can wipe out the taxable rent, and sometimes create a loss. Pre-construction interest, incurred before the property was ready, is claimed in five equal annual instalments after completion.
Source: ClearTax · Vakilsearch
Old vs new regime: which is better for landlords
Which tax regime serves a landlord better turns on one point: what happens to a house-property loss. The good news is that the two most valuable deductions — the 30% standard deduction and the full home-loan interest on a let-out property — are available in both the old and new regimes. The difference lies in set-off. If your loan interest exceeds the rent and creates a loss under the House Property head, the old regime lets you set off up to ₹2 lakh of that loss against your salary or other income in the same year, and carry the excess forward for eight years. The new regime does not: a house-property loss there cannot be set off against other income at all, nor carried forward. So if you have a large loan generating a loss you want to offset against salary, the old regime is usually better; if your rent comfortably covers the interest, or you have few other deductions, the simpler new regime — with its tax-free income up to ₹12 lakh — often wins.
Source: Tax Garden · ClearTax
How much you actually keep: a worked example
A quick example shows how little of the rent is actually taxed. Take a flat let at ₹50,000 a month — ₹6 lakh a year — with ₹20,000 of municipal tax and ₹2 lakh of home-loan interest.
So of ₹6 lakh in rent, only about ₹2.06 lakh is taxable — roughly a third — and that is then taxed at your slab rate. If this is your only income, the new regime’s rebate could reduce the tax to nil; if you are already in the 30% bracket, the tax on this slice is around ₹64,000, leaving you keeping the large majority of your rent.
Source: Vakilsearch · Tax Garden
TDS on rent, GST and the NRI landlord
Three rules govern who deducts or charges tax on the rent itself. First, TDS: if an individual or HUF tenant, not under tax audit, pays more than ₹50,000 a month, they must deduct 2% TDS under Section 194-IB — reduced from 5% in October 2024 — and deposit it, usually once a year. A business or company tenant deducts 10% under Section 194-I where annual rent exceeds ₹6 lakh. Either way, the landlord claims the TDS as credit in their return, so it is a timing matter, not an extra cost — just check it appears in your Form 26AS. Second, GST: renting a home for residential use is exempt, but a commercial property, or a home let to a GST-registered business, attracts 18% GST once the landlord’s rental turnover crosses ₹20 lakh. Third, the NRI landlord: if you are a non-resident, the tenant must deduct a much higher 30% (plus surcharge and cess) under Section 195, so it is wise to obtain a lower-TDS certificate to avoid tying up cash in a refund.
Source: IncorpX · Vakilsearch
Ways to legally reduce your tax
A handful of simple, legitimate steps keep your tax on rent as low as the law allows.
- Claim the full 30% standard deduction — it needs no bills and applies in both tax regimes.
- Deduct the municipal taxes you actually paid during the year, before the 30% is applied.
- Claim the entire home-loan interest on a let-out property, which has no upper limit.
- Own the property jointly, so the rental income is split across two owners' tax slabs.
- Choose the old regime if a large loan creates a house-property loss you want to set off.
- Report every rupee of rent, keep the agreement and records, and reconcile TDS in Form 26AS.
Source: Vakilsearch · Tax Garden
The bottom line
Tax on rental income sounds heavier than it is. Because the law allows a flat 30% deduction, a full deduction for municipal taxes, and unlimited home-loan interest on a let-out property, most landlords are taxed on far less than the rent they collect — and a decent loan can shrink the taxable figure to a fraction of it. The one strategic choice is your tax regime: the old regime rewards a large loan through the ₹2 lakh loss set-off, while the new regime rewards simplicity and offers tax-free income up to ₹12 lakh. Whichever you pick, claim every deduction you are entitled to, split ownership where you can, report all your rent honestly, and reconcile any TDS. Do that, and you keep the maximum the law allows — which, for most landlords, is a great deal more than they expect.
Frequently asked questions
It is taxed under ‘Income from House Property’. You deduct municipal taxes and a flat 30% standard deduction from the annual rent, then any home-loan interest, and the balance is added to your income and taxed at your slab rate.
Usually far less than the full rent. A flat 30% is deducted automatically, and municipal taxes and home-loan interest reduce it further — so it is common for only a third or less of the rent to be taxable.
Under Section 24(a), you can deduct a flat 30% of the Net Annual Value to cover repairs and maintenance, with no bills required, whether or not you actually spent anything. It applies in both tax regimes.
Yes. For a let-out property, the entire interest is deductible with no upper limit, in both the old and new tax regimes — unlike a self-occupied home, where it is capped at ₹2 lakh under the old regime only.
The 30% deduction and let-out interest are allowed in both. The difference is the loss set-off: the old regime lets you set off up to ₹2 lakh of a house-property loss against other income and carry the rest forward; the new regime does not.
Yes, above certain limits. An individual or HUF tenant paying over ₹50,000 a month deducts 2% (Section 194-IB); a business tenant deducts 10% where annual rent exceeds ₹6 lakh (Section 194-I). The landlord claims it as credit.
Renting a home for residential use is exempt. Commercial property, or a home let to a GST-registered business, attracts 18% GST once your rental turnover exceeds ₹20 lakh a year.
The tenant must deduct around 30% TDS (plus surcharge and cess) under Section 195, regardless of amount. NRIs can obtain a lower-TDS certificate to avoid over-deduction and a large refund claim.
You can treat up to two properties as self-occupied with nil value. A further vacant property can be taxed on ‘deemed rent’ — a notional rent — even if you receive nothing.
Yes. Co-owners declare only their share of the rent and claim deductions in proportion to their ownership, which can lower the overall tax by using two slabs.
Yes. All rental income is taxable regardless of how it is paid. Unreported cash rent can be treated as unexplained income and attract penalties if detected during scrutiny.
Typically ITR-1 for simple cases with one house, or ITR-2 for multiple properties or more complex situations, reporting the details in Schedule HP. The due date is usually 31 July.
Verified — key facts
- Rental income is taxed under 'Income from House Property': Gross Annual Value − municipal taxes = Net Annual Value; less 30% standard deduction (Section 24a) and home-loan interest (Section 24b) = taxable income, taxed at slab.
- The 30% standard deduction needs no documentation and applies in both the old and new regimes; only 70% of net rent is taxable before interest.
- Home-loan interest on a let-out property is fully deductible with no cap in both regimes; a self-occupied home is capped at ₹2 lakh (old regime only).
- Loss set-off differs: the old regime allows up to ₹2 lakh against other income plus an 8-year carry-forward; the new regime allows neither.
- TDS on rent: 2% by individual/HUF tenants over ₹50,000/month (Section 194-IB, reduced from 5% in Oct 2024); 10% by business tenants over ₹6 lakh/year (Section 194-I); ~30% + surcharge + cess for NRI landlords (Section 195).
- GST: residential letting for residential use is exempt; commercial or residential-to-business letting attracts 18% once rental turnover exceeds ₹20 lakh (₹10 lakh in special-category states).
- Up to two properties can be self-occupied (nil value); a further property may be taxed on deemed rent; co-owners split income and deductions by ownership share; the new regime allows tax-free income up to ₹12 lakh.
Disclaimer: This article is for informational purposes only and is not tax or financial advice. Rates, deduction limits, thresholds, regime rules and TDS provisions are set by law, can change (including under the Income-tax Act, 2025 and annual Finance Acts), and depend on your specific circumstances. The worked example is illustrative and uses stated assumptions. Always verify the current rules on the Income Tax Department portal and consult a qualified chartered accountant for your own situation.
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