Tax on Rental Income in India: Deductions, Home Loan Interest and Regimes

Your tenant moved in last April, the rent comes in on the 5th of every month, and now it is time to file your return. You know rent is taxable. What you may not know is that you are not taxed on the full amount, and that a home loan on the same flat can bring the taxable figure close to zero, or even below it.

This guide walks through how rental income is taxed in India as of November 2026: what counts, what you can deduct, how the old and new tax regimes treat it differently, and the small habits that keep you out of trouble with the tax department.

Rent is taxed under its own head: income from house property

Rent from a flat, house, shop or office you own is taxed as income from house property, separate from your salary. It is added to your total income and taxed at your slab rate, so a landlord in the 30% bracket pays 30% (plus cess) on whatever is left after deductions.

The Income Tax Act, 2025 replaced the 1961 Act from 1 April 2026, and the section numbers moved. The deductions most landlords know as the old Section 24 now sit in Section 22 of the new Act, and the way annual value is worked out is in Section 21. The basic method has not changed.

How the taxable figure is worked out

There are four steps. Keep your rent receipts and property tax receipts handy.

1. Gross annual value. Usually the actual rent you received for the year. If the flat stood empty for some months, you count only the rent actually due for the let-out period.
2. Minus municipal tax. Property tax you actually paid to the local body during the year (BBMP or the new Greater Bengaluru Authority corporations, in Bengaluru) is subtracted. It counts only if you, the owner, paid it, and only in the year you paid it. The result is the net annual value.
3. Minus 30% standard deduction. You get a flat 30% of the net annual value, no bills needed. It is meant to cover repairs and upkeep, so you cannot also claim painting, plumbing or society maintenance on top of it.
4. Minus home loan interest. Interest paid during the year on a loan taken to buy, build, repair or renovate the property is deductible. For a let-out property there is no ₹2 lakh cap on the interest itself, though there is a cap on how much of any resulting loss you can use against other income (more on that below).

Worked example: no home loan

Ananya rents out her 2BHK in Bengaluru for ₹40,000 a month and paid ₹12,000 in property tax this year.

• Gross annual value: ₹4,80,000
• Less property tax: ₹12,000, leaving ₹4,68,000
• Less 30% standard deduction: ₹1,40,400
• Taxable rental income: ₹3,27,600

If her salary already puts her in the 30% slab, the tax on this works out to about ₹1,02,200 including the 4% cess. Notice that she pays tax on roughly two-thirds of the rent, not all of it.

Worked example: with a home loan

Now say Ananya paid ₹3,50,000 in interest on the loan for this flat during the year. Her figure becomes ₹4,68,000 minus ₹1,40,400 minus ₹3,50,000, which is a loss of ₹22,400 from house property. What happens to that loss depends on her tax regime.

Old regime vs new regime for landlords

Both regimes still exist under the new Act. The slabs for the year 2026-27 were left unchanged in the February 2026 Budget, and under the new regime income up to ₹12 lakh effectively pays no tax because of the rebate. For rental income, the regimes differ in a few places.

• 30% standard deduction and municipal tax: allowed in both regimes.
• Interest on a let-out property: allowed in both, with no upper limit, as of November 2026.
• Using a loss against salary: allowed in the old regime up to ₹2 lakh a year. Not allowed at all in the new regime.
• Interest on your own self-occupied home: up to ₹2 lakh in the old regime. Nothing in the new regime.
• Principal repayment: deductible under the old Section 80C-type limit in the old regime only.

In the old regime, Ananya can set off her ₹22,400 loss against her salary, which saves her about ₹7,000 at the 30% slab. In the new regime, she cannot. The loss is not wasted, though: she can carry it forward for up to eight years and use it against future house property income, for example once her rent rises or the interest falls.

The bigger the loan, the more this matters. Someone paying ₹6 lakh of interest on a flat that earns ₹3 lakh a year in rent will have a loss well above ₹2 lakh. In the old regime, ₹2 lakh of it reduces their salary income this year and the rest carries forward. In the new regime, all of it carries forward. If you have a large loan on a rented flat, work out your tax both ways before you choose a regime.

The new regime can be very good for rent-only earners

A retired couple living on rent is in a different position. Because of the 30% deduction and the rebate, someone whose only income is rent of about ₹17.14 lakh a year (and who pays no property tax) ends up with taxable income of ₹12 lakh, and pays no tax under the new regime. Property tax paid pushes that rent figure a little higher. For many older landlords with no loan, the new regime is simply the better deal.

Situations that trip landlords up

• Two homes you live in, a third that sits empty. You can treat up to two homes as self-occupied with nil annual value. A third house is treated as if it were let out, and you are taxed on a fair notional rent even if it earns nothing.
• Joint owners. Each co-owner shows their share of the rent and claims their share of the deductions. Make sure the shares on paper match how you split things in practice.
• Rent you never received. If a tenant defaults, the unpaid rent is generally left out of the year's income, subject to conditions. If you recover old arrears later, they are taxed in the year received, after a 30% deduction.
• Pre-construction interest. Interest paid while the flat was being built is claimed in five equal parts, starting the year construction is completed.
• Furniture and services. If you charge separately for furniture, appliances or services, that part may be taxed as income from other sources rather than house property, and the 30% deduction does not apply to it.

TDS, AIS and other paperwork

If your tenant is an individual paying more than ₹50,000 a month, they are required to deduct TDS from the rent (2% as of November 2026) and give you a certificate. Companies renting your flat also deduct TDS under their own rules. Either way, the deduction shows up in your Annual Information Statement (AIS), so the department already knows your rent. Report the gross rent, then claim the TDS as a credit.

Renting a home to an individual for them to live in does not attract GST. Commercial lettings and lettings to GST-registered businesses have different rules, so check those separately.

• Keep a signed rental agreement and a record of every rent receipt or bank credit.
• Pay property tax from your own account and keep the receipt.
• Ask your lender for the annual interest certificate. It lists interest and principal separately.
• Match your AIS against your own records before filing.

This is general information, not tax advice. If you are deciding whether a flat will pay its way after tax, Skyros Estates can help you compare realistic rents and costs for RERA-verified homes before you buy.