A second flat, a rented shop, a spare floor given on lease — rental income feels like the most passive money there is, until tax season reveals its paperwork. In India, rent is taxed under the head income from house property, with its own computation rules: a flat 30 per cent standard deduction, municipal taxes as a deduction, and home loan interest treatment that differs sharply between let-out and self-occupied property. Whether you are a first-time landlord or holding a small portfolio, here is how rental income is taxed and filed.

How rental income is computed

The starting point is the gross annual value — essentially the actual rent received, though the law has deeming provisions for properties rented below market value in certain cases. From this, subtract municipal taxes actually paid during the year to arrive at the net annual value. Then claim the standard deduction: a flat 30 per cent of the net annual value, available to every landlord with no proof of expenses required — it is meant to proxy maintenance, repairs and collection costs in one stroke. Finally, deduct interest paid on housing loans taken for the property, without the 2-lakh cap that applies to self-occupied homes; for let-out property, the full interest is deductible against rental income. The result is your taxable income from house property, taxed at your slab rate.

An example

Take a flat rented at 25,000 rupees a month — 3 lakhs a year — with 15,000 rupees of municipal taxes paid and a home loan on which you paid 1.8 lakhs in interest. Net annual value is 2.85 lakhs; the 30 per cent standard deduction removes 85,500; interest removes another 1.8 lakhs; taxable rental income is just 19,500 rupees. The arithmetic surprises most new landlords: between the standard deduction and interest, the taxable portion is often a fraction of the rent collected. Properties still under construction or bought with large loans can even show a loss from house property, which can be set off against other income up to 2 lakhs a year under current rules.

Deductions and planning points

Beyond the standard 30 per cent and loan interest, remember that only municipal taxes actually paid during the year are deductible — arrears paid count in the year of payment. Pre-construction interest on a home loan is deductible in five equal instalments starting from the year construction completes, a benefit many landlords miss. If the property is co-owned, each co-owner is taxed on their share separately, effectively multiplying the deductions. And the age-old question of rent to family members: the law taxes genuine rental arrangements, but paper-only rents to create deductions invite scrutiny — the tenant should actually occupy and pay.

• Standard deduction: flat 30% of net annual value — no bills needed.
• Municipal taxes: deductible when actually paid.
• Home loan interest: fully deductible for let-out property (no 2-lakh cap).
• Loss set-off: house property loss adjustable against other income up to 2 lakhs/year.

Filing and TDS rules

Rental income is reported in the ITR under income from house property — ITR-1 suffices for a single property with no capital gains, ITR-2 beyond that. Tenants paying monthly rent above 50,000 rupees must deduct TDS — 2 per cent for plant and machinery, 5 per cent for land and building under the tenant-individual provisions — and deposit it against your PAN; reconcile this credit in Form 26AS before filing, since tenant compliance is patchier than employer TDS. Keep the rent agreement, rent receipts or bank statements, municipal tax receipts and the loan interest certificate in a single folder each year — they are everything an assessing officer will ever ask for.

FAQs

Is rental income taxed differently in the new regime? The computation is the same; the new regime only removes most Chapter VI-A deductions, which rarely affected rental income anyway.

Do I pay tax on rent if my tenant deducts TDS? Yes — TDS is advance tax, not final tax. Compute the full liability on your slab and claim the TDS as credit.

What about notional rent on a second vacant house? Under current law, a second self-occupied property can be treated as such without deemed rent, simplifying what was once a complex area.

Rental income rewards the organised landlord: the 30 per cent standard deduction and full interest deductibility make the tax maths gentler than it looks, provided the paperwork — agreements, receipts, TDS reconciliation — is in order. Treat the property like the small business it is, and the tax will take care of itself.

Compiled by the Khabar 24h Editorial Desk from publicly available sources.