Tax on Rental Income in India: Rules, Deductions & How to Save Tax 2026

In India, tax on rental income refers to taxation of income earned by leasing residential or commercial property, governed by the Income Tax Act, 1961. Rental income is part of ‘Income from House Property’ and is calculated as Gross Annual Value (GAV) minus municipal taxes and a standard 30% deduction. Home loan interest is also deductible, and TDS of 10% is applied if the rent exceeds ₹2 lakh per year. Knowing how much rent is tax-free helps landlords plan, and proper record-keeping ensures savings and compliance. 

What is Tax on Rental Income in India?

If a property is leased out or rented, the amount received instead of the property is termed as “Rental Income” under Indian tax laws, governed by the Income Tax Act of 1961(1). This includes any amount paid in advance as the security deposit. This tax is calculated after the municipal tax deductions.

According to the IPC, the rental income is considerable and should fall within the brackets of Section 24 of the Income Tax Act. The government makes no differentiation between residential property and commercial property. Even the parking lot attached to your office space or home is considered a house property, and if rented out, it is taxable. Any property in the shape of a building is a house property and can be taxed. In India, 30% (2) of your rental income is taxable under the head of income from house property, subject to a standard deduction. The applicant must be the legal owner of the property for this standard deduction rate to apply to income tax on house rental income in India.

Taxation Rules for Rental Income

Taxation Rules for Rental Income define how income earned from renting or leasing property is taxed in India under the Income Tax Act. Under section 24 (3), it covers residential and commercial properties, standard deduction, municipal tax deduction, and TDS compliance. Below are key pointers: 

• 30% Standard Deduction: A flat 30% of NAV is allowed as a deduction for repairs and maintenance, irrespective of actual expenses.
• Interest on Home Loan [Section 24(b)]: You can claim up to ₹2 lakh per year as a deduction on interest paid on home loans for self-occupied properties. The full interest amount is deductible without any upper cap for let-out properties.
• Municipal Tax Deduction: Property owners can deduct the full municipal taxes actually paid to local authorities from their rental income before calculating taxable income.

How is Tax on Rental Income in India Calculated?

The above method gives you a rough idea of taxes on rental income from house property and how they  Income tax on house rent is calculated on the property's annual value after deduction. It applies to both residential and commercial properties, helping determine the taxable rental income under the Income Tax Act (4). Below is the step-by-step process:

• Determine Gross Annual Value (GAV):
  • Take the actual rent received or the reasonable expected rent from the property.
• Deduct Municipal Taxes Paid:
  • Subtract property taxes paid to local authorities.
• Calculate Net Annual Value (NAV):
  • NAV = GAV- Municipal Taxes
• Apply Standard Deduction (30%):
  • Deduct 30% of NAV for repairs and maintenance, even if actual expenses are lower.
• Deduct Home Loan Interest (if applicable):
  • Self-occupied: Up to ₹2 lakh per year
  • Let-out: Full interest paid
• Calculate Taxable Rental Income: 
  • Taxable Income = NAV, 30% standard deduction - Home Loan Interest.
• Apply Income Tax Slab:
  • Add taxable rental income to other income and calculate tax as per the applicable slab. 

Example of Tax deduction calculation 2026-27

(₹6,00,000 − ₹50,000) − 30% of ₹5,50,000 (₹1,65,000) − Home Loan Interest ₹1,50,000 = ₹2,35,000 taxable rental income

The above method gives you a rough idea of taxes on rental income from house property and how they are calculated.

Tax on Rental Income Based on Type of Property

Any sort of income generated from a property that is sublet to someone else is considered rental income, and it is taxable under the current tax laws in India. However, the owner of the property is allowed to make certain rental property deductions to the amount paid as income tax on rental income in India from residential property in India if they have incurred any cost toward the property being made rent-ready and towards the maintenance of the property.

The security deposit amount can also be deducted if the owner has the intention to return it. However, if the security deposit is not returned, it will be taxable. If the security deposit is kept against some damage, it can be shown in the income statement, and later, the owner can ask for a deduction on it. Deductible expenses include, but are not limited to, the following for rental income from commercial property under income tax laws:

Rental income in India is taxable, with deductions allowed for property-related expenses. Security deposit return is deductible, and expenses for property preparation and maintenance can also be claimed under income tax laws

• Advertising
• Commissions
• Cleaning and maintenance
• Depreciation
• Insurance premiums
• Interest expense
• Local property taxes
• Pest control
• Professional fees
• Management fees
• Rental of equipment
• Rents you paid to others
• Yard maintenance
• Supplies
• Trash removal fees
• Repairs
• Travel expenses
• Utilities

The amount for standard deduction cannot exceed 30% of the owner’s GAV on income tax on rental income from commercial property in India. These form the basics of income tax rules for rental income in India.

Tax on Rental Income in India: Is Tax Imposed on Vacant Houses?

In India, tax on rental income applies only to properties that earn rent. For vacant houses, no rent is received, so no tax is levied. Understanding how much rental income is tax-free and how much tax is imposed helps plan investments effectively. 

• Self-occupied house property: Under this, only two properties are self-occupied; the rest are deemed let-out. GAV is considered nil; however, if you apply for a home loan, you can claim a deduction up to 2 lakh per year. 
• Let-out house property: The actual rent received or receivable is taxable for let-out properties. From GAV, two deductions are allowed under Section 24, i.e. a 30% standard deduction for repairs/maintenance and a full deduction of home loan interest, with no upper limit on the interest amount.

Rental income is taxed as business income when the property is part of a commercial activity, such as leasing multiple properties or providing additional services. In such cases, tax on rental income in India is computed under “Profits and Gains of Business or Profession” instead of “Income from House Property.”

Rental Income Taxation for NRIs

Rental Income tax for NRIs applies to income from Indian properties. NRIs must report their rent under the Income Tax Act, 1961. Deduction, TDS, and capital gain rules also apply. 

• NRI Accounts: Rental income can be credited to NRE or NRO accounts; only NRO accounts are taxable in India.
• Tenant TDS: Tenant must deduct 30% TDS on rent before paying the NRI landlord.
• Deductions: NRIs can claim a Section 24 deduction- 30% standard deduction, municipal taxes, and home loan interest for let-out properties.
• Filing:  NRIs must file an Income Tax Return in India for the rental income earned.

TDS on Rent: Applicability, Rules, and Limits

TDS on rental income requires the tenant to deduct tax before paying rent. Thresholds and sections vary from individuals, HUFs, companies, and NRIs, ensuring landlords report rental income correctly to the tax authorities. Check the table below for a better understanding:

What is the Rate of TDS on Rent?

TDS is deducted when the tenant credits the ‘income by rent’ to the landlord’s account. If the rent is paid via cash, cheque, or draft, TDS must be deducted at the time of payment.

Here are the applicable TDS rates on rent:

• 2% on rent paid for plant, machinery, or equipment
• 10% on rent paid for furniture or fittings
• 10% on rent paid for land, building, or both

What is the Section for Taxable Income from House Property?

Section for Taxable Income from House Property explains how rental or deemed rent from residential or commercial properties is taxed in India under the Income Tax Act. Sections 22-27 cover national income, legal ownership, allowable deductions, and exceptions under Section 27. 

• Tax is levied on the annual value of a property under 'income from house property,' as per Section 22 of the Indian Income Tax Law (8).
• It's important to note that the tax is not on the property itself, but on the notional income derived from it.
• The computation of income in this category is determined by sections 23-27, which specify the scope of taxable income.
• Typically, the legal owner of the property is responsible for paying this tax.
• However, Section 27 (9) outlines exceptions, such as when a property is transferred without adequate consideration or when possession is granted in part performance of a contract.

What are the Rental Income Tax Exemptions in India?

Rental income tax exemptions in India allow property owners to reduce taxable income through specific deductions, including benefits for self-occupied property, municipal taxes, a standard 30% deduction, and eligible home loan interest, under the Income Tax Act. 

• Special exemptions and deductions are available for rental income tax in India.
• Gross Annual Value (GAV) is considered only for income tax on received rent.
• Owners can claim deductions if the rent is not received.
• Premises rented for less than 14 days qualify for deductions from the GAV.
• Homeowners with a home loan can deduct up to ₹2 lakhs.
• Budget 2020 introduced section 80 EEA (10), allowing an additional tax deduction of up to ₹1.5 lakhs for interest paid on the property.

How are the Rental Income Tax Deductions in India Calculated?

For the 2025-26 financial year, rental income tax deduction in India is calculated by subtracting municipal taxes, applying a 30% standard deduction for repairs/maintenance, and deducting eligible home loan interest under Section 24, reducing taxable rental income.

Rent Receipt for Income Tax Purposes

Rent receipts serve as proof of payment and are essential for claiming an exemption for House Rent Allowance (HRA) under Section 10(13A) (11) of the Income Tax Act. A valid rent receipt should include the tenant's and landlord’s names, the address of the rented premises, the rent amount, the rental period, the landlord’s PAN, and the revenue stamp. Submit rent receipts monthly or quarterly to your employer to claim an HRA exemption while computing TDS on your salary.

Tips to Save Tax on Rental Income

Saving tax on rental income in India is possible by claiming legal deductions, planning property ownership smartly, claiming benefits on home loan interest, and understanding the available exemptions under the Income Tax Act. 

• Exclude maintenance charges from the rent received to lower your taxable rental income. Instead, mention in the rental agreement that the tenant will pay maintenance charges directly to the society association.
• If you purchase a property jointly with a trusted family member, you can divide the rental income and save tax proportionately.
• Deduct municipal taxes, such as sewage and property taxes, from your rental income to reduce your tax liability.
• Suppose you rent a semi-furnished or fully furnished property with additional services like Wifi, DTH, or a pipeline connection. You can ask the tenant to pay for these services separately, lowering your taxable rental income.

How Can NoBroker Help?

NoBroker helps property owners manage tax on rental income by providing rental agreements, tenant verification, and online rent payment records that simplify income tracking. Their service also includes property management, legal assistance, and home loan support, making documentation organised and tax filing easier for landlords across India while ensuring compliance.

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