Tax Implications of Renting Out Property in India (2026)
Renting out property is one of the most common ways Indians earn passive income, but the tax rules around it are widely misunderstood. Whether you own a flat in Bengaluru, a shop in Karnataka, or a portfolio spread across cities, rental earnings are taxed under a specific head of income with its own deductions, its own TDS rules, and, for commercial space, its own GST treatment. This 2026 guide walks you through everything a landlord in India needs to know for the current financial year.
How rental income is taxed: the House Property head
Rent you receive is taxed under the head Income from House Property. This applies to buildings and land attached to them, whether residential or commercial. The tax is not simply charged on the rent you collect; it is computed through a defined sequence.
Step 1: Gross Annual Value (GAV)
GAV is the higher of the actual rent received or receivable and the reasonable expected rent (based on municipal value or fair rent, capped by standard rent). For a genuinely let-out property, the actual rent usually forms the GAV.
Step 2: Deduct municipal taxes
Property tax paid to the local municipal body (for example, BBMP in Bengaluru) is deductible from GAV, but only when it is actually paid by the owner during the year. GAV minus municipal taxes gives the Net Annual Value (NAV).
Step 3: Deductions under Section 24
Two deductions are allowed from NAV:
- Standard deduction of 30% of NAV [Section 24(a)]: A flat 30% is allowed towards repairs, maintenance and collection costs. You get this regardless of whether you actually spent anything.
- Home loan interest [Section 24(b)]: Interest on a loan taken to buy, build or repair the property is deductible. For a let-out property there is no upper cap on the interest itself, though loss set-off is limited (see below). For a self-occupied property the cap is Rs 2 lakh per year.
The result, that is NAV minus 30% minus interest, is your taxable income from that property. It can be negative, creating a “loss from house property”.
Self-occupied, let-out and deemed let-out
- Self-occupied: GAV is taken as nil, so there is no rental income. You can claim up to two houses as self-occupied. Only the Section 24(b) interest (capped at Rs 2 lakh) is available.
- Let-out: Actually rented, and taxed as explained above.
- Deemed let-out: If you own more than two houses and the extra ones are neither rented nor self-occupied, those additional properties are treated as deemed let-out and taxed on notional (expected) rent even if they are vacant.
Old regime vs new regime: a big difference
The regime you choose materially changes your rental tax outcome. The new regime under Section 115BAC is now the default.
| Item | Old regime | New regime (default) |
|---|---|---|
| Standard deduction 30% [Sec 24(a)] | Allowed | Allowed |
| Interest on let-out property [Sec 24(b)] | Allowed (full) | Allowed (full) |
| Interest on self-occupied property | Up to Rs 2 lakh | Not allowed |
| House property loss set off against other income | Up to Rs 2 lakh per year | Not allowed |
In short, if your strategy relied on a large home-loan-interest loss reducing your salary or business income, the new regime removes that benefit. Landlords with heavily leveraged let-out property should compare both regimes before filing.
TDS on rent: who deducts and how much
Tenants are often required to deduct TDS before paying rent. Two sections apply, depending on who the tenant is.
Section 194-I (mainly businesses)
- Applies to any person, other than an individual or HUF not under tax audit, paying rent to a resident.
- Rate: 10% on land, building, furniture and fittings; 2% on plant and machinery.
- Threshold: TDS applies when rent exceeds Rs 6 lakh per year (raised from Rs 2.4 lakh with effect from 1 April 2025).
Section 194-IB (individuals and HUF)
- Applies to individuals and HUFs not under tax audit who pay rent of more than Rs 50,000 per month.
- Rate: 2% (reduced from 5% with effect from 1 October 2024).
- Deducted once a year (or at the end of tenancy). No TAN is needed; deposit through Form 26QC and issue Form 16C to the landlord.
The landlord claims this TDS as credit against the final tax liability, so it is not an extra cost, just tax collected earlier.
GST on rent: commercial vs residential
GST does not apply to renting a residential dwelling for personal residence. It becomes relevant mainly for commercial property and certain business arrangements.
- Commercial rent: Taxed at 18% GST. A landlord whose aggregate turnover crosses Rs 20 lakh (Rs 10 lakh in some special-category states) must register and charge GST.
- Reverse Charge (RCM): With effect from 10 October 2024, if an unregistered landlord rents commercial property to a GST-registered tenant, the tenant must pay GST under RCM.
- Residential let to a registered person: When a residential dwelling is rented to a GST-registered person for business use, the registered tenant pays 18% GST under RCM. Renting a home to an ordinary individual for their own residence stays exempt.
Getting the House Property computation, TDS credits and GST position right can save real money and avoid notices. If you would like professional help, our team can handle your income tax filing for rental income from start to finish.
Frequently Asked Questions
Is the 30% standard deduction based on actual expenses?
No. The 30% deduction under Section 24(a) is a flat allowance on the Net Annual Value. You get it in full whether or not you actually spent that much on repairs or maintenance, and it is available in both the old and new tax regimes.
I have a home loan on my rented flat. How much interest can I deduct?
For a let-out property there is no cap on the interest deduction itself under Section 24(b). However, the loss from house property that you can set off against other income, such as salary, is limited to Rs 2 lakh per year in the old regime, and cannot be set off at all in the new regime. Unabsorbed loss can be carried forward for up to eight years.
As a tenant paying Rs 60,000 rent monthly, do I have to deduct TDS?
Yes. An individual paying rent above Rs 50,000 per month must deduct 2% TDS under Section 194-IB, deposit it using Form 26QC, and give the landlord Form 16C. You do not need a TAN for this.
Do I have to pay GST on rent from my residential flat?
Renting a residential dwelling to a person for their own residence is exempt from GST. GST at 18% generally applies to commercial rent, and can also apply under reverse charge when a residential unit is let to a GST-registered person for business purposes.
Which regime is better for landlords?
It depends on your numbers. If you rely on a large home-loan-interest loss to reduce other income, the old regime may be better because the new regime does not allow that set-off. Compare both regimes each year, as slab rates and rebates differ.
