Rent from a house, flat, shop or office you own is taxed under the head “income from house property”. You start with the rent (the annual value), subtract municipal property tax you paid, then deduct a flat 30% for repairs and upkeep plus interest on any loan for the property. What is left is added to your income and taxed at your slab rate. From 1 April 2026 these rules sit in sections 20 to 25 of the Income-tax Act, 2025, with the same structure as the familiar sections 22 to 27 of the old Act.
Key takeaways
- Taxable rent = rent less municipal tax paid, less 30% standard deduction, less home loan interest.
- The 30% deduction is automatic; you cannot claim actual repair or maintenance costs instead.
- Tenants who are individuals paying rent above ₹50,000 a month deduct 2% TDS; businesses deduct 10% on rent of land or buildings above ₹50,000 a month.
- Unrealised rent and arrears have special rules; arrears received later are taxed after a 30% deduction.
- Rent from a shop or office is also house property income, unless renting is your business.
How the calculation works
| Step | Item | Example (₹) |
|---|---|---|
| 1 | Gross annual value (rent received or receivable, or reasonable expected rent if higher) | 3,60,000 |
| 2 | Less: property tax actually paid in the year | (12,000) |
| 3 | Net annual value | 3,48,000 |
| 4 | Less: standard deduction at 30% | (1,04,400) |
| 5 | Less: interest on home loan for the property | (1,50,000) |
| 6 | Income from house property | 93,600 |
This example assumes a flat on Peelamedu let at ₹30,000 a month with ₹12,000 of Corporation property tax paid (see our Coimbatore property tax guide).
Annual value
For a let-out property, the annual value is generally the higher of the actual rent and a reasonable expected rent. If a property is vacant for part of the year and the actual rent is lower because of the vacancy, the actual rent is used. Rent you could not recover can be excluded if conditions are met, and becomes taxable if recovered later.
Self-occupied homes
If you live in the house, its annual value is nil. Since Budget 2025 you can treat up to two houses as self-occupied. A third house you own, even if vacant, may be taxed on notional rent.
Deductions allowed
- 30% standard deduction on net annual value, regardless of what you actually spend.
- Interest on borrowed capital used to buy, build, repair or reconstruct the property, with no cap for a let-out property. Pre-construction interest is claimed in five equal instalments.
- Nothing else: society maintenance, insurance and brokerage are not separately deductible.
If interest makes the result a loss, under the old regime you can set off up to ₹2 lakh against other income in the year and carry forward the rest for eight years. Under the new regime the loss cannot be set off against other heads. Details are in home loan tax benefits.
TDS on rent
| Tenant | Old section | Threshold | Rate |
|---|---|---|---|
| Individual or HUF not required to have a tax audit | 194-IB | Rent above ₹50,000 per month | 2% (since 1 October 2024) |
| Businesses and others | 194-I | Rent above ₹50,000 per month (from 1 April 2025) | 10% for land, building or furniture; 2% for plant and machinery |
Under the 2025 Act, these are consolidated in the TDS table in section 393(1). Individual tenants now report rent TDS through Schedule A of Form 141 instead of Form 26QC. If you, as the landlord, do not share your PAN, TDS is at a higher rate. Claim all TDS against your tax when you file your return.
Commercial property and GST
Rent from an office, showroom or shop is also taxed as house property income. However, commercial rent can attract 18% GST if your total taxable supplies cross the GST registration threshold, and some tenants pay GST under reverse charge. Residential rent to an individual for living is exempt from GST. If you own retail space or offices, read our guide on GST on commercial rent.
Joint owners and family
If a property is jointly owned with defined shares, each co-owner is taxed on their share of the rent and gets their own deductions. If you gift money to your spouse to buy a property, rent from it can be added back to your income under the clubbing rules (old section 64, now renumbered). See joint ownership for more.
Rental agreement and records
A written agreement registered as required under the Tamil Nadu tenancy law protects both sides and supports your tax position. Keep the agreement, rent receipts or bank statements, property tax receipts and loan interest certificates. If you are an NRI landlord, your tenant must deduct TDS at the rates for non-residents; see managing rental property from abroad.
Frequently asked questions
Is rental income taxed at a flat rate?
No. It is added to your total income and taxed at your slab rate after the 30% standard deduction and interest.
Can I deduct repair and maintenance costs from rent?
Not separately. The 30% standard deduction covers repairs and upkeep whatever you actually spend.
Does my tenant have to deduct TDS?
An individual tenant paying more than ₹50,000 a month must deduct 2%. Businesses paying rent for buildings above ₹50,000 a month deduct 10%.
How does the Income-tax Act 2025 treat rental income?
House property income has its own chapter in the 2025 Act, with the familiar rules on annual value and deductions carried over under new section numbers.
This article is general information as of September 2026, not legal, tax or financial advice. Rules and rates change; confirm with a qualified advocate, chartered accountant or the relevant department before you act.
References
- ClearTax: Income-tax Act 2025 old vs new section numbers
- Income Tax e-filing portal: Form 141 user manual
- TaxClue: Home loan tax benefits under the Income-tax Act 2025
- CBDT: FAQs on transition to the Income-tax Act, 2025
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