Tax on Rental Income in India: Rules, Deductions & How to Save Tax (2025)

Investing in real estate is always considered a high-value investment. You can either invest in the property for your personal use or rent it to a tenant in need. Rental income is treated as business income in a lot of circumstances under the IPC and property owners should be aware of the income tax rate on house rent and important factors like how much rental property income is tax-free. If proper planning is done, a property owner can avail of a rental income exemption from paying certain taxes on rental income. Let’s find out what the tax on rental income is in India.

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” according to the existing Tax Laws in India. 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% of your rental income is taxable under the head of income from house property as a standard deduction. The applicant must be the legal property owner for this standard deduction rate to apply to income tax on house rental income in India.

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Taxation Rules for Rental Income

Rental income from residential or commercial properties is taxed under “Income from House Property.” Even if the property is not rented but is deemed to be let out (e.g., if you own more than one property), income may still be taxable.

GAV is calculated as the higher of expected rent, actual rent received or receivable.

Under Section 24, the following deductions are allowed from the Net Annual Value (NAV):

• 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.

How is Tax on Rental Income in India Calculated?

While filling out your statement for the Income Tax Returns (ITR), it is advisable to use a rental income tax calculator in India to help you figure out the approximate amount you may have to pay as tax on rental income in India. Here are the steps through which you can determine the approximate amount you may have to pay as income tax on rental property:

• Find out the property's Gross Annual Value (GAV): The GAV of a self-occupied property is considered zero. For a rented property, the amount collected as rent annually is the GAV.
• Avoid Property Tax: If paid in advance, Property Tax is allowed as a deduction.
• Find the Net Annual Value: The difference between GAV and Property Tax Paid. 
• Reduce 30% as a standard deduction: Under Section 24, 30% of the standard deduction on rental property income is allowed on NAV.
• Reduce Home Loan Amount: The Home Loan interest amount paid during the year can be deducted under Section 24. The full amount paid as interest can be deducted for a rented-out property. 
• Pay Tax based on Applicable Rental Income Tax Rate: The resulting amount is the income from the rental property taxable under the current tax rate on rental income in India.

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?

The Income Tax Act imposes tax on all properties, including commercial or residential, under the head ‘Income from House Property.’ The Income Tax Act classifies two house properties: 

• 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

NRIs and PIOs who own property in India are subject to Indian taxation on earnings, including property rentals and capital gains on investments exceeding the basic rental income exemption limit. Rental income is taxable in India and is calculated similarly to a resident's tax. 

Income earned from a property in India is credited to NRE or NRO accounts after paying taxes and can be easily repatriated. The interest on an NRE account is exempt from tax, while an NRO account is subject to standard taxation. Tenants must deduct 31.2% tax on rental income and provide the NRIs with the certificate.

TDS on Rent: Applicability, Rules, and Limits

TDS on rent is a tax that the tenant deducts before making a rental payment to the landlord. It ensures the landlord's rental income is reported to the Income Tax Department. Tenants must deduct TDS when paying rent, whether through cash, cheque, or transfer, if the rent exceeds specified thresholds. Additionally, knowing the limit for TDS on rent and when rent on TDS applies is essential for both tenants and landlords.

Threshold for Deduction:

• ₹50,000/month for individual or HUF tenants not liable to tax audit under Section 194-IB.
• ₹2.4 lakh/year for others (companies, firms, etc.) under Section 194-I.

Who is Liable?

• Individuals & HUFs (only if monthly rent exceeds ₹50,000)
• Companies, firms, partnerships, etc. (if annual rent exceeds ₹2.4 lakh)
• For NRIs receiving rent, TDS applies under Section 195 and must be deducted regardless of the rent amount.

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?

• 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.
• 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 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?

• 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 Rs lakhs.
• Budget 2020 introduced section 80 EEA, 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?

Rental income from the property is a pretty common source of income in India and for the financial year 2025-26, income up to ₹2,50,000 is tax-free for individual taxpayers. If rental income is the main source of income for a particular individual, let’s see under what circumstances they may have to pay taxes on it.

Income Tax Calculation for House Rent Received

Suppose the individual has a property they have let out for ₹20,000. This makes the GAV of the property ₹20,000 x 12 months = ₹2,40,000. This amount is under ₹2,50,000, so the owner may not have to pay any tax on this income. However, suppose the rent of the property was ₹30,000. Now, the GAV= ₹30,000 x 12 months = ₹3,60,000. The owner may have to pay tax on this income as this exceeds the limit of ₹2,50,000. The owner can also avail of income tax benefits on their home loan under Section 24(b).

Income from rent is the primary source of income for a lot of households and it’s a great way to invest in the evergreen real estate industry. However, one must be aware of the tax rate on rental income in India and pay all the due tax on rental income on time. In most circumstances, homeowners are not aware of the deductions and exemptions they can avail of while paying rental income tax in India. Don’t worry. Consider your problems solved with Legal Experts from NoBroker. Get all your questions answered and queries resolved by legal experts mastering the property domain. Just drop a comment here and we will reach out to you. 

Rent Receipt for Income Tax Purposes

Rent receipts act as proof of rent paid and are essential for claiming House Rent Allowance (HRA) exemption under Section 10(13A) 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

To save tax on your rental income in India, you can consider the following tips:

• 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.

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