Income from House Property: How Rental Income Is Taxed in India

What Counts as "Income from House Property"

Any income earned from a building or land attached to it — whether let out, self-occupied, or even deemed to be let out (a second house lying vacant) — is taxed under this head. This applies regardless of whether the property is used for residential or commercial purposes, as long as the owner is not running a business from it.

Step 1: Compute Gross Annual Value (GAV)

For a let-out property, the Gross Annual Value is generally the actual rent received or receivable during the year, subject to a floor of the municipal/fair rental value in certain cases. For a self-occupied property, the GAV is taken as nil.

Step 2: Deduct Municipal Taxes

Municipal taxes (property tax) paid to the local authority during the year are deducted from the Gross Annual Value to arrive at the Net Annual Value (NAV). This deduction is only available for let-out (or deemed let-out) property — it has no impact on a self-occupied property where GAV is already nil.

Step 3: Standard Deduction of 30%

From the Net Annual Value, a flat standard deduction of 30% is allowed under Section 24(a) — regardless of the actual expenses incurred on repairs, maintenance, painting, or insurance. You cannot claim a higher deduction even if your actual maintenance costs exceed 30% of NAV, and you cannot be denied this deduction even if you spent nothing on the property.

Step 4: Deduction for Home Loan Interest — Section 24(b)

Interest paid on a home loan is deductible under Section 24(b):

• Self-occupied property: Interest deduction capped at ₹2 lakh per year (old regime only). If the loan was taken for construction/purchase, this cap applies only if construction is completed within 5 years from the end of the financial year in which the loan was taken — otherwise the cap drops to ₹30,000.
• Let-out property: The entire interest amount is deductible, with no upper cap — though the resulting loss that can be set off against other income heads is capped (see below).

How a Loss from House Property Is Treated

If deductions (standard deduction + interest) exceed the income, the result is a loss under this head. This loss can be set off against income from other heads (such as salary) up to ₹2 lakh per year. Any loss beyond ₹2 lakh cannot be set off in the same year but can be carried forward for up to 8 assessment years to be set off only against future income from house property.

Multiple Self-Occupied Properties

From FY 2019-20 onwards, a taxpayer can treat up to two properties as self-occupied (GAV nil), provided neither is actually let out. If you own a third house and don't let it out, it is treated as "deemed to be let out" and taxed on a notional rental value, even though no rent is actually received.

New Tax Regime Impact

Under the new tax regime (Section 115BAC), the Section 24(b) interest deduction on a self-occupied property is not available. However, for a let-out property, interest deduction continues to be allowed even under the new regime — because it is computed as part of arriving at the income from that property, not as a separate "deduction" in the Chapter VI-A sense. The set-off of house property loss against salary income (capped at ₹2 lakh) is, however, restricted under the new regime for self-occupied property since GAV is nil and there's no interest deduction to create a loss in the first place.

Worked Example: Let-Out Property

Suppose annual rent received is ₹3,00,000, municipal taxes paid are ₹15,000, and home loan interest for the year is ₹2,80,000.

• Gross Annual Value = ₹3,00,000
• Less: Municipal taxes = ₹15,000 → Net Annual Value = ₹2,85,000
• Less: Standard deduction (30% of NAV) = ₹85,500
• Less: Home loan interest = ₹2,80,000
• Income/(Loss) from House Property = ₹2,85,000 − ₹85,500 − ₹2,80,000 = (₹80,500) loss

This loss of ₹80,500 can be set off against the owner's salary income in the same year (within the ₹2 lakh annual cap on house property loss set-off).