Rental income from house property is taxed under the head 'Income from House Property' in India. The tax is calculated on the 'Net Annual Value' (NAV) after allowing specific deductions — not the full rent received. Here's the complete guide for FY 2025–26.
How to Calculate Tax on Rental Income
- Gross Annual Value (GAV): Higher of actual rent received or expected rent (municipal valuation or fair rent)
- Less: Municipal taxes paid during the year (actual amount paid to municipal body)
- = Net Annual Value (NAV)
- Less: Standard deduction of 30% of NAV (flat — no need to show actual expenses)
- Less: Interest on home loan paid during the year (no upper limit for let-out property)
- = Net Income from House Property (taxed at slab rates)
Rental Income Tax Calculation Example
| Step | Amount |
|---|---|
| Annual Rent Received | ₹3,00,000 |
| Less: Municipal taxes paid | −₹12,000 |
| Net Annual Value (NAV) | ₹2,88,000 |
| Less: 30% Standard Deduction | −₹86,400 |
| Less: Home loan interest | −₹1,20,000 |
| Taxable House Property Income | ₹81,600 |
| Tax at 20% slab (if applicable) | ₹16,320 |
TDS on Rent — Section 194I and 194IB
| Section | Applicable When | TDS Rate |
|---|---|---|
| 194I (commercial properties) | Annual rent > ₹2.4 lakh to any entity (firm, company) | 10% (building) or 2% (equipment) |
| 194IB (residential properties) | Monthly rent > ₹50,000 paid by individual/HUF | 5% (once a year on last month's rent) |
Loss from House Property — Set-off Rules
If interest on home loan exceeds rental income (very common for new loans), you have a loss under 'Income from House Property'. From FY 2017–18: this loss can be set off against other income (salary, business, etc.) only up to ₹2 lakh per year. Any remaining loss is carried forward for 8 years and set off against future house property income.
Deemed Rental Income — Two or More Properties
You can choose only ONE house as self-occupied (zero GAV). All other houses you own — even if vacant — are treated as 'deemed let out' and taxed on their fair market rent or municipal valuation. This is a common surprise for property investors who leave houses vacant: they still pay tax on deemed rental income.