Tax on rental income in India, governed by the Income Tax Act, 1961, is a key consideration for property owners earning from residential or commercial rentals. Understanding rental tax rules is essential. How is rental income taxed, and what are the compliance steps? Let’s break it down.
What Constitutes Tax on Rental Income?
Under the Income Tax Act, rental earnings fall under “Income from House Property.” The gross annual value (GAV) is the higher of actual rent or fair market rent. Municipal taxes are deducted to arrive at net annual value (NAV). Then, a 30% standard deduction plus interest on loans (fully for let-out properties) are applied to reach the taxable amount. For example, with ₹5 lakh rent, ₹1.5 lakh (30%) plus ₹1 lakh home loan interest reduces taxable income to ₹2.5 lakh .
Deductions & Exemptions Available:
You can claim:
- Municipal taxes paid
- 30% standard deduction on NAV
- Full loan interest for rented property under Section 24(b)
- Loss from self-occupied properties (up to ₹2 lakh), carried forward up to 8 years.
Calculating Taxable Rental Income:
First, determine your Gross Annual Value (GAV): total rent received or receivable, or fair market value if rent is unpaid or vacant. Deduct municipal/property taxes paid, then apply a flat 30% standard deduction for maintenance under Section 24(a). Interest on a home loan can also be claimed under Section 24(b). For first‑time homebuyers, additional deductions up to ₹1.5 lakh under Section 80EEA may apply.
Tax on rental income in India applies on this net amount. Rental income up to ₹2.5 lakh may be tax‑free if there’s no other income. Under the new tax regime, up to ₹10 lakh may become tax‑free subject to deduction limits.
Tax Rates and TDS Rules:
Rental income is added to your total income and taxed as per slab rates. For FY 2024–25, slabs under old and new regimes range from 5% to 30%. Furthermore, if monthly rent exceeds ₹50,000, tenants must deduct 10% TDS under Section 194-I.
Budget 2025 raised the annual TDS exemption threshold to ₹6 lakh. Tenants missing TDS may receive notices—but can avoid default if you’ve paid tax and filed returns properly.
Filing ITR and Compliance Tips:
When filing your return (usually ITR‑1 or ITR‑2 depending on number of properties), report rental income only under house property income head. Include details of municipal tax, loan interest, self‑occupied vs let‑out property breakdown, and co‑owners’ share if applicable. For NRIs, tenants must deduct TDS at 30% plus cess and file Form 15CA; landlord claims credit in return filing under ITR‑2
Losses from house property (for instance, interest exceeds rent) can be set off against other income up to ₹2 lakh in the same financial year, with balance carried forward up to eight assessment years.
Conclusion:
Tax on rental income in India is governed firmly under Income from House Property with limited deductions and changed TDS norms. It can be moderated significantly through deductions, smart regime selection, and compliance. Following correct rules can ensure compliance and avoid unnecessary liabilities. Ready to optimize your rental taxes? Explore more tax insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Tax on Rental Income here – https://www.bajajfinserv.in/rental-income