Moment guide · FY 2026-27

I earn rent from my property

How is rental income taxed and what deductions can I claim on it?

Sec 22Sec 23Sec 24Sec 194-IBSec 71(3A)Verified 2026-08-11

Rental income is taxed under 'Income from House Property'. Annual value = higher of actual rent or fair rent. Deductions: municipal taxes paid, 30% mandatory standard deduction, and full loan interest (no cap for let-out property). Net income or loss from let-out property is computed this way. Losses offset salary income up to ₹2L/year (s.71(3A)). Both old and new regime apply these rules the same way.

Your legitimate options

Every route the statute actually gives you — with its condition, cap and deadline.

Route	Condition	Cap / deadline
30% standard deduction	All let-out properties	Fixed 30% of net annual value — mandatory; cannot substitute with actual repair expenses
Loan interest — no cap	Let-out property with home loan	Full interest deductible; no ₹2L cap; resulting loss set off vs salary up to ₹2L (s.71(3A))
Municipal taxes paid	Taxes actually paid (not accrued) in the year	Deducted from gross annual value before 30% SD calculation
TDS by tenant	Monthly rent >₹50,000 from any single tenant	Tenant must deduct 5% TDS u/s 194-IB; file Form 26QC quarterly; reflect in owner's 26AS
Depreciation on furniture/fixtures	Furnished property let-out	Standard deduction (30%) covers all property maintenance; no separate furniture depreciation in HP

The #1 trap

The 30% standard deduction is mandatory and computed on net annual value (after municipal taxes) — you cannot substitute it with actual expenses like painting, repairs, or maintenance fees.

The decision path

Follow it top to bottom — the first condition that matches is your answer.

Gross annual value = higher of actual rent received or fair rent (municipal assessment)
Minus: municipal taxes actually paid in FY → equals net annual value
Minus: 30% mandatory standard deduction (of net annual value)
Minus: loan interest in full (no cap for let-out property)
IF negative → set off against salary up to ₹2L (s.71(3A)); carry forward balance 8 years

Worked example

Nandini, 50, owns a 2BHK let out for ₹28,000/month in Pune

Nandini's 2BHK is rented at ₹28,000/month. Fair rent (municipal assessment) = ₹3.0L/year. Actual rent = ₹28,000 × 12 = ₹3.36L. Gross annual value = higher of ₹3.36L and ₹3L = ₹3.36L. Municipal taxes paid: ₹18,000/year. Net annual value: ₹3.36L - ₹18,000 = ₹3.18L. 30% standard deduction: ₹3.18L × 30% = ₹95,400. Loan interest: Home loan for this flat at ₹2.1L/year interest. Income from house property: ₹3.18L - ₹95,400 - ₹2.1L = ₹84,600 net loss. This ₹84,600 loss sets off against her salary income of ₹12L. Taxable salary = ₹11,15,400. On TDS: Nandini's tenant pays ₹28,000/month = ₹28k < ₹50k threshold per s.194-IB. No TDS obligation for the tenant. Had the rent been ₹55,000/month, the tenant would need to deduct 5% = ₹2,750/month and file Form 26QC. Under both old and new regime, the HP income computation is identical — the 30% SD and loan interest are regime-neutral. A quick call with us dials in the final figure.

Questions people actually ask

Can I deduct actual painting and repair expenses instead of the 30% standard deduction?

No. Section 24(a) mandates the 30% standard deduction — it covers all property maintenance expenses. You cannot substitute or add actual repair costs.

What if my property is vacant for a few months — is notional rent still charged?

For a property that was genuinely available for rent but remained vacant, actual rent received (even if zero for some months) is used. The gap due to vacancy is not treated as foregone notional rent — only the rent actually received or receivable is the annual value.

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Sections: 22, 23, 24, 194-IB, 71(3A) · Last verified 2026-08-11 · Reviewed by Harun Raaj & Associates, Chartered Accountants. Every figure cites the Income-tax Act, 1961 (with ITA 2025 mapping via our section index).