Income Tax on Rental Income – How Rs. 17.14 Lakh Can Be Tax-Free in FY 2025-26

The tax treatment of rental income has become genuinely more favourable under the new regime — a landlord whose only income is rent can now structure their taxable position so that a surprisingly large amount, up to Rs. 17.14 lakh, attracts zero tax. Understanding exactly how the 30% standard deduction, home loan interest, and TDS rules interact is essential whether you're a landlord for the first time or optimising an existing rental portfolio.

This page covers:

• How rental income is taxed and calculated step-by-step
• TDS rules landlords and tenants must know
• How Rs. 17.14 lakh in rent can be tax-free under the new regime
• Old regime vs. new regime deductions compared
• Tax benefits on home loan interest for rental property
• 10 practical strategies to reduce tax on rental income
• GST implications on rental income

Rental income is taxed in India under the "Income from House Property" category, regardless of whether the property is residential or commercial. Taxation is based on the property's annual value — the higher of actual rent received or expected rent.

For self-occupied properties, there is no taxable income since no rent is earned. For rented properties, net rental income after deductions is added to total taxable income. Allowed deductions include a standard 30% deduction on net annual value, interest paid on home loans under Section 24(b), and municipal taxes paid during the financial year.

• Who deducts: The tenant, who pays rent to the property owner
• Threshold: TDS applies if rent exceeds Rs. 50,000/month or Rs. 2.4 lakh/year
• Rates under Section 194-I: 10% on rent for land/buildings/furniture; 2% on rent for plant/machinery
• Individuals/ HUFs not requiring audit: Must deduct 5% TDS under Section 194-IB if monthly rent crosses Rs. 50,000
• Rent paid to NRIs: TDS deducted at approximately 30%, plus applicable surcharge and cess

1. Start with Gross Annual Value (GAV) — the higher of expected rent or actual rent received
2. Subtract municipal taxes (if paid during the financial year)
3. The result is Net Annual Value (NAV)
4. From NAV, deduct a standard 30% deduction
5. Deduct interest paid on housing loan, if applicable
6. The balance is your Income from House Property

Under the new tax regime, any loss from house property cannot be adjusted against other income sources like salary or business income.

The new tax regime is now the default for most taxpayers — per CBDT estimates, nearly 95-97% are expected to opt for it in FY 2025-26. While it removes many popular deductions, it offers a major advantage: tax exemption on income up to Rs. 12 lakh through slab rates and rebate benefits.
For individuals earning only rental income, this works particularly well. After the 30% standard deduction, it's possible to earn up to Rs. 17.14 lakh annually from rent without paying any income tax — provided rent is your only income source.

Simpler version — Rs. 10 lakh rental income example: If you earn Rs. 10 lakh from rent, the 30% standard deduction under Section 24(a) removes Rs. 3 lakh, leaving taxable income of Rs. 7 lakh. Under Section 87A, individuals with taxable income up to Rs. 7 lakh get a full rebate of up to Rs. 12,500 — making your tax liability zero, even though you earned Rs. 10 lakh.

This relief applies only when the taxpayer has no other income sources — salary, business profits, or capital gains disqualify this specific benefit.

Available under the new regime

• Standard deduction of 30% on NAV (only 70% of rental income becomes taxable)
• Home loan interest deduction (no upper limit for let-out property), though resulting losses cannot offset other income
   

Additional deductions available only under the old regime

• Section 80C: Principal repayment deduction up to Rs. 1.5 lakh, including stamp duty and registration charges
• Section 24(b): Interest deduction up to Rs. 2 lakh for self-occupied property; no limit for let-out property
• Set-off of loss: House property losses (mainly interest-driven) can offset other income up to Rs. 2 lakh/year
• Sections 80EE/80EEA: Additional interest benefits for eligible first-time buyers (subject to scheme validity)

These additional deductions can make the old regime more beneficial for landlords with large home loan outgoings.

When a property is purchased jointly with a jointly-taken home loan, each co-owner can claim tax benefits separately, provided they are also co-borrowers contributing to repayment. This was a popular tax-saving strategy under the old regime, especially for working couples — but these joint-ownership benefits are not available under the new regime, making regime comparison essential before choosing.

Under Section 24(b), you can claim the entire interest paid on a home loan as a deduction for rental properties — unlike self-occupied properties, where the deduction is capped at Rs. 2 lakh annually. For properties under construction, interest paid during the pre-construction phase can be claimed in five equal instalments starting from the year construction completes.

Additionally, opting for a home loan lets you claim deductions under Section 80C for principal repayment up to Rs. 1.5 lakh (old regime only).

1. Show maintenance charges separately — not taxable if billed apart from rent
2. Use the 30% standard deduction — claimable regardless of actual maintenance costs
3. Deduct municipal taxes — must be paid by the landlord, not the tenant
4. Claim full interest deduction on home loans — no limit for let-out property
5. Consider joint ownership — divides rental income between co-owners (old regime benefit)
6. Split rent and service charges for furnished homes — only rent is taxed
7. Use an HUF for ownership — divides income across multiple exemptions
8. Invest rental earnings in PPF, ELSS, or NPS for Section 80C benefits
9. Draft rental agreements smartly — avoid renting to your own firm; use 12-month+ agreements
10. Use senior citizen exemptions — property in the name of someone 60+ raises the tax-free limit to Rs. 3 lakh

• No GST on residential use — rent for residential purposes is exempt
• GST on commercial rent — 18% GST applies if rental income from commercial use exceeds Rs. 20 lakh/year
• Residential property used commercially — GST may apply if the landlord is GST-registered
• Security deposits — not subject to GST, but advance rent may attract it

If you're looking to expand your rental property portfolio, having the right financing in place is essential. Check your eligibility for a home loan from Bajaj Finance, offering interest rates starting from 7.25% p.a.* and loan amounts up to Rs. 15 Crore*.

Understanding the interplay between the standard deduction, home loan interest, and the Section 87A rebate reveals genuinely significant tax-saving opportunities for landlords, particularly under the new regime.