How to Calculate the Real Return on a Property Investment in India

A friend tells you his flat has "doubled in twelve years" and earns ₹30,000 a month in rent. It sounds like a great investment. But he has not counted the stamp duty, the interiors, the maintenance he paid every month, the year it sat empty, or the tax. Most people don't, which is why property returns are so often overstated.

This guide shows how to work out what a property actually earns you, in plain words: rental yield, appreciation, all the costs, tax, and a single number called IRR that pulls it all together. We finish with a full worked example for a ₹1 crore flat in Bengaluru.

The two parts of any property return

A property pays you in two ways. Rent comes in every month. Appreciation is the rise in price, which you only collect when you sell. A real return counts both, after costs and tax, and accounts for the fact that rent arrives early while the sale money comes years later.

Part 1: rental yield, gross and net

Gross rental yield is yearly rent divided by the price. A ₹1 crore flat renting for ₹30,000 a month earns ₹3.6 lakh a year, a gross yield of 3.6%. That is the figure brokers quote.

Net rental yield is what is left after the costs you pay as owner, divided by everything you put in. It is always lower. Costs to subtract each year:

• Empty months. Assume at least one month a year between tenants.
• Society maintenance, which owners usually pay even when the flat is let.
• Property tax.
• Repairs and repainting between tenants.
• Brokerage for finding a new tenant, often a month's rent each time.
• Home insurance, if you have it.

And on the "money put in" side, add the upfront costs, not just the price: stamp duty and registration (about 7% to 8% in Bengaluru, as of November 2026), interiors or semi-furnishing, and legal fees.

Part 2: appreciation, and the costs of selling

Price growth varies hugely by city, micro-market and project, and past growth does not promise future growth. When you estimate it, also subtract the costs of selling: brokerage (often around 1%), any repairs to make the flat saleable, and capital gains tax.

For homes sold after 23 July 2024, long-term capital gains on property are taxed at 12.5% without indexation, with a grandfathering option for resident individuals and HUFs who bought before that date. Stamp duty, registration and the cost of improvements are added to your purchase cost, which lowers the taxable gain.

Part 3: tax on the rent

Rent is taxed at your slab rate as income from house property, after deducting property tax and a flat 30% standard deduction. Maintenance and repairs are not deducted separately; the 30% covers them. For someone in the 30% bracket, roughly a fifth of the rent goes in tax.

Part 4: IRR, in plain words

Simple yield and simple growth can't be added together, because money arrives at different times. ₹1 lakh of rent in year one is worth more to you than ₹1 lakh in year ten, since you could have invested it in the meantime.

IRR (internal rate of return) solves this. It is the single yearly interest rate that, if a bank paid it on your money, would give you exactly the same cash flows: your money going in on day one, rent coming in each year, and the sale proceeds at the end. That makes it directly comparable with an FD rate or a mutual fund's annual return.

You don't need to calculate it by hand. List each year's cash flow in a spreadsheet (money paid out as a minus, money received as a plus) and use the IRR function. The skill is in getting the cash flows honest.

Worked example: a ₹1 crore flat in Bengaluru, held for ten years

All figures are illustrative. The flat is bought with cash, rented out and sold after ten years.

Money in on day one

• Price: ₹1,00,00,000
• Stamp duty and registration: about ₹7,50,000
• Semi-furnishing (wardrobes, kitchen, lights): ₹3,00,000
• Legal and miscellaneous: ₹50,000
• Total put in: ₹1,11,00,000

Each year while you own it

• Rent of ₹30,000 a month for 11 months (one month empty): ₹3,30,000 in year one
• Maintenance ₹60,000, property tax ₹10,000, repairs ₹15,000, brokerage averaged at ₹15,000: ₹1,00,000
• Net rent before tax: ₹2,30,000 in year one, a net yield of about 2.1% on ₹1.11 crore
• Rent and costs both assumed to rise 5% a year

Tax on the rent, for someone in the 30% slab, is about ₹70,000 in year one, leaving roughly ₹1.6 lakh. Over ten years the net rent before tax adds up to about ₹28.9 lakh.

The sale in year ten

• Price growth assumed at 6% a year: sale price about ₹1,79,00,000
• Less brokerage at 1%: about ₹1,79,000
• Gain over the ₹1.11 crore cost: about ₹66.3 lakh
• Capital gains tax at 12.5% plus cess: about ₹8.6 lakh

The answer

• IRR before tax: about 6.9% a year
• IRR after tax (30% slab): about 5.8% a year

Not the 9.6% you would get by adding a 3.6% gross yield to 6% growth. The gap comes from the 11% of upfront costs, the owner's running costs, empty months and tax. Change the growth to 4% and the after-tax IRR drops to roughly 4%; push it to 8% and it climbs to roughly 7.5%. Appreciation does most of the heavy lifting, which is why the location and the price you pay matter more than anything else.

What about a home loan?

Borrowing changes the picture. Your own money put in is smaller, so if prices rise faster than your loan rate, the return on your own money goes up. If they rise slower, the loan drags it down, and EMIs have to be paid whether or not the flat is let. In the old tax regime, interest on a let-out flat is deductible and a loss of up to ₹2 lakh can be set against salary; in the new regime the interest only offsets the rent from that property. Run the IRR with your loan's EMIs as yearly outflows and the loan balance paid off from the sale.

A quick checklist before you buy for returns

1. Use the rent the flat will actually get, from current listings in that building, not the brochure figure.
2. Count all upfront costs, not just the price.
3. Budget for at least one empty month a year, plus maintenance, property tax and repairs.
4. Use a modest growth figure, and test what happens if it is lower.
5. Take off tax on rent and on the sale.
6. Compare the after-tax IRR with what the same money would earn elsewhere, for the same level of risk.

This is general information, not investment or tax advice; a CA can check the tax side for you. If you want to run these numbers on a real flat, Skyros Estates can help you compare RERA-verified homes with realistic rent and resale figures for each area.