Is Your Rental Income Taxable? The 30% Standard Deduction Rule, Explained Simply

Quick Answer: Yes — rent you receive is taxable under the head "Income from House Property". Start with the gross annual rent, subtract municipal taxes actually paid, then claim a flat 30% standard deduction on the net value — no bills needed. Home loan interest is an extra deduction, and these deductions apply under both tax regimes in FY 2026-27.

Rent money feels like it should be fully yours. But the moment that monthly ₹25,000 hits your account, the Income Tax Department wants its share. The good news: rent is taxed under some of the most generous rules in the Indian tax code. Most landlords end up paying tax on barely two-thirds of what they collect — and landlords whose only income is rent often pay nothing at all. This guide explains how rental income is taxed in FY 2026-27 (assessment year 2027-28), what the 30% standard deduction covers, how the old and new regimes treat your rent differently, and the mistakes that cost landlords the most.

Rent has its own head of income

Tax law sorts income into five heads, and rent from a property you own falls under "Income from House Property" — it is neither salary nor business income. That matters because this head comes with its own simple computation formula:

1. Gross Annual Value (GAV) — the rent received or receivable for the year. If the property's reasonable expected market rent is higher, the higher figure is used (vacancy and unrealised-rent adjustments aside — see below).
2. Minus municipal taxes actually paid by you, the owner, during the year. Unpaid dues and taxes paid by the tenant do not count. The result is the Net Annual Value (NAV).
3. Minus a 30% standard deduction on the NAV, under Section 24(a).
4. Minus home loan interest, under Section 24(b), if the property was bought or built with a loan.

The result is your taxable rental income, added to your other income and taxed at your slab rate.

The 30% standard deduction: the best line in the formula

Section 24(a) gives every landlord a flat 30% deduction on the Net Annual Value — automatic, with no receipts or proof required. It covers repairs, maintenance, insurance, and rent-collection costs, whatever you actually spent. You cannot claim more than 30% even with huge repair bills; you still get the full 30% if you spent nothing. Two features make it especially valuable: it is available under both the old and new tax regimes (unlike most deductions the new regime removed), and it applies to the NAV — so the municipal-tax deduction you take first shrinks the base slightly, while many landlords forget the municipal-tax line entirely.

Home loan interest: where the regimes genuinely differ

If the property was bought, built, or renovated with a loan, the interest is deductible under Section 24(b) — and here your regime choice matters:

• Let-out property, old regime: full interest deductible, no cap.
• Let-out property, new regime: full interest still deductible against rental income — but a loss from house property cannot be set off against salary or other income in the same year. The old regime allows set-off of a rental loss up to ₹2 lakh per year, with the balance carried forward up to 8 years.
• Self-occupied property: interest up to ₹2 lakh per year is deductible under the old regime; not available at all under the new regime.

Also note the pre-construction interest rule: EMIs paid before the property was completed are deductible in five equal annual instalments starting from the year construction finished. For a let-out property, each fifth is fully deductible alongside the current year's interest, subject to the set-off rules above.

Worked example: ₹25,000 a month in rent

A flat let out at ₹25,000 per month, with no home loan, in FY 2026-27:

1. Gross Annual Value: ₹25,000 × 12 = ₹3,00,000
2. Less municipal taxes paid: ₹3,00,000 − ₹12,000 = ₹2,88,000 (NAV)
3. Less 30% standard deduction: ₹2,88,000 × 30% = ₹86,400
4. Taxable rental income: ₹2,88,000 − ₹86,400 = ₹2,01,600

Only ₹2,01,600 of the ₹3,00,000 collected is taxable — roughly two-thirds. If this is the person's only income, the tax is zero under both regimes: under the new regime, ₹2,01,600 is far below the ₹12 lakh Section 87A zero-tax threshold (₹60,000 rebate, as per current rules for FY 2026-27); under the old regime, it sits below the ₹2.5 lakh basic exemption. Add a home loan with ₹1,50,000 of annual interest, and the taxable figure falls to about ₹51,600 — which is why landlords with loans in the old regime often find rental income nearly tax-free.

TDS on rent: when your tenant deducts tax for you

TDS is the tenant's job, but landlords must understand it — it reduces the rent they receive and appears in their Form 26AS/AIS.

• Section 194-I (companies, audit-liable payers): rent above ₹50,000 per month per payee attracts 10% TDS (2% for plant and machinery). The threshold moved from the old ₹2.4 lakh annual figure to ₹50,000 per month via the Finance Act, 2025, effective 1 April 2025.
• Section 194-IB (ordinary individual/HUF tenants): rent above ₹50,000 per month attracts 2% TDS, reduced from 5% with effect from 1 October 2024. The tenant deposits it once a year through Form 26QC — no TAN needed.
• The credit is yours. TDS your tenant deducts is tax already paid on your behalf. Claim it as credit in your ITR.

Practical note: a flat rented at ₹60,000 a month to a salaried tenant means that tenant should be deducting 2% (₹1,200 a month). If they do not, the mismatch between your declared rent and their HRA claim is traceable.

Deemed let-out: tax on houses you never rented

The rule that surprises most people: a taxpayer can treat up to two houses as self-occupied with nil annual value as per current rules. But a third house kept vacant is deemed let-out — you pay tax on its expected market rent even though you collected nothing. Two softeners exist: a genuinely vacant property gets a vacancy allowance (GAV reduced by the loss from vacancy), and unrealised rent — rent the tenant genuinely could not pay despite recovery efforts under prescribed conditions — is excluded from the computation. Keep documentation of recovery efforts if this applies.

HRA vs rental income: do not mix them up

• HRA (House Rent Allowance) is an exemption for rent you pay — part of a salaried person's pay structure, available only under the old regime.
• Rental income is the rent you receive as a property owner, taxed under Income from House Property.

A person can legitimately have both — paying rent where they work while collecting rent on a flat they own elsewhere. They are reported and taxed independently.

Common mistakes landlords make

1. Thinking rent is tax-free because "it is not salary." Rent is taxable — but the deduction formula is generous.
2. Forgetting the municipal-tax deduction. Only taxes actually paid during the year count; many landlords never claim this line.
3. Claiming repairs separately on top of the 30%. The 30% standard deduction covers all repairs and maintenance. No additional deduction for painting, plumbing, or society charges sits on top of it.
4. Choosing a regime blind. A landlord with heavy loan interest often does better in the old regime (loss set-off); one with no loan often does better in the new regime. Compute both before filing.
5. Ignoring TDS deducted by tenants. Unclaimed TDS in Form 26AS/AIS is simply extra tax paid.
6. Skipping the return because "rent is small." Filing is mandatory once total income crosses the basic exemption (₹4 lakh new regime, ₹2.5 lakh old, for FY 2026-27) — even if rent is the only income.

This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance. Investments are subject to market risk.