How rent is taxed, the 30% standard deduction, loan interest, and the regime difference
Income from letting a property is taxed under the head house property. You start from the net annual value (broadly the rent, less municipal taxes paid), then take a flat 30% standard deduction under Section 24(a) for repairs and upkeep (whether or not you actually spend it), and deduct home-loan interest under Section 24(b). A self-occupied house has nil annual value, and under the old regime its loan interest is deductible up to Rs 2 lakh. The regime matters: the old regime allows self-occupied interest and lets a house-property loss be set off against other income (capped at Rs 2 lakh), while the new regime does not allow self-occupied interest and bars that set-off.
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How house-property income is computed
The computation is the same shape for any let property: take the gross rent (or the expected market rent if higher), subtract municipal taxes you actually paid to get the net annual value, then take the 30% standard deduction and the home-loan interest. The 30% deduction under Section 24(a) is a flat allowance for repairs and maintenance, you get it regardless of what you actually spend, so you do not deduct actual repair costs on top.
Self-occupied vs let-out
A self-occupied house has a nil annual value (you are not taxed on notional rent), and you can own up to two houses treated as self-occupied. Under the old regime, the loan interest on a self-occupied house is deductible up to Rs 2 lakh. A let-out house is taxed on its rent (after the 30% deduction), and its loan interest is deductible in full, but if that creates a loss from house property, the set-off against your other income is capped at Rs 2 lakh, with the excess carried forward for up to eight years.
tipYou can treat up to two houses as self-occupied (nil annual value). Beyond two, the additional properties are treated as deemed let-out and taxed on a notional rent, even if they are empty.
The regime difference
The choice of regime materially changes house-property deductions. Under the old regime you can deduct self-occupied loan interest (up to Rs 2 lakh) and set off a house-property loss against other income (capped at Rs 2 lakh). Under the new regime, self-occupied interest is not deductible at all, and a house-property loss cannot be set off against other heads, though let-out interest is still deductible against the rental income itself. So a person with a large self-occupied home loan often finds the old regime more attractive.
warningUnder the new regime you cannot deduct self-occupied home-loan interest, nor set off a house-property loss against salary or business income. If you have a big home loan, run both regimes before choosing.
Income-tax Act 1961 s.115BAC (new-regime restrictions on house-property deductions)
Frequently asked questions
How is rental income taxed in India?+
Under the head house property. You take the net annual value (rent less municipal taxes paid), then a flat 30% standard deduction under Section 24(a) for repairs (whether or not you spend it), and deduct home-loan interest under Section 24(b). The result is added to your income and taxed at your slab rate under the regime you choose.
What is the 30% standard deduction on house property?+
It is a flat allowance of 30% of the net annual value under Section 24(a), meant to cover repairs and maintenance. You get it automatically, regardless of what you actually spend, so you do not separately deduct repair or maintenance costs. The remaining deduction available is the home-loan interest under Section 24(b).
Can I deduct home-loan interest on my own home?+
Under the old regime, yes, up to Rs 2 lakh for a self-occupied house under Section 24(b). Under the new regime, self-occupied loan interest is not deductible at all. For a let-out property, the interest is fully deductible against the rent under either regime, but the new regime bars setting any resulting loss against other income.
Do I pay tax if my house is empty?+
You can treat up to two houses as self-occupied with a nil annual value, so no tax on notional rent for those. But a third or further property is treated as deemed let-out and taxed on a notional market rent even if it is empty. So owning several properties can create taxable house-property income without any actual rent.