How Rental Income From Indian Property Is Actually Taxed
Rental yield quoted pre-tax is a marketing number. The post-tax yield depends on the 30% standard deduction, interest treatment, and whether the property is self-occupied, let-out or deemed let-out.
Standard deduction
30%
Interest cap (self-occupied)
₹2 L
NRI TDS on rent (u/s 195)
31.2%
Annual set-off cap
₹2 L
What the data says
Net annual value = gross rent less municipal taxes paid; a flat 30% standard deduction then applies.
Interest on a let-out property is fully deductible against house-property income, but loss set-off against other heads is capped at ₹2 lakh per year, with 8-year carry-forward.
Tenants paying rent to an NRI landlord must deduct TDS under Section 195, not the 5% resident rate.
How EstateVeda executes this
Post-tax yield modelling before purchase, not after the first return.
Ownership structuring across family members in lower slabs where genuinely justified.
Municipal tax and interest documentation maintained for assessment.
NRI landlords: Form 15CA/15CB and repatriation planning on rental flows.
Risks we underwrite against
Deemed rent on a second vacant property that owners assume is untaxed.
Tenants under-deducting TDS on NRI rent, leaving the landlord with a mismatch.
Claiming interest without the lender certificate at assessment.
EstateVeda verdict
Underwrite rental assets on post-tax net yield. For NRIs, plan the TDS and repatriation route before signing the first lease.
Frequently asked questions
How is rental income taxed in India?
Under the head Income from House Property: gross rent less municipal taxes gives net annual value, then a 30% standard deduction and interest deduction apply. The balance is taxed at slab rates.
What TDS applies on rent paid to an NRI?
The tenant must deduct TDS under Section 195 — generally 31.2% including surcharge and cess — and file Form 27Q.
Is a second vacant house taxable?
Two properties may be treated as self-occupied. Beyond that, deemed rental value is taxable even if the property is vacant.