Rental Income Tax: 30% Deduction, Municipal Tax, Interest & ₹2L Cap
Taxable rent = (rent − municipal tax) − 30% − home-loan interest. Let-out interest has no cap, but loss set-off vs salary is capped at ₹2L/year. Co-owned, arrears + 2-house rule inside.
The computation (every let-out house)
| Step | Rule |
|---|---|
| Gross annual rent (higher of actual/reasonable) | Start here |
| − Municipal/property tax actually paid by you | Paid basis only |
| = Net Annual Value (NAV) | — |
| − 30% standard deduction on NAV | Flat 30%, no bills needed |
| − Full home-loan interest (let-out: no ₹2L cap) | Pre-construction: ⅕ × 5 yrs |
5 rules landlords miss
- ₹2L loss cap: house-property loss vs other heads capped at ₹2L/year; excess carried forward 8 years.
- 2 self-occupied exempt: own 2 homes you live in? Both tax-free (since Budget 2019) — the 3rd is deemed let-out.
- Arrears: taxable in the year received with 30% deduction — even if you sold the house.
- Co-owned: each co-owner is taxed only on their share (and claims their own interest share).
- Unrealised rent: deductible only if genuinely irrecoverable + conditions met (defaulter out, legal steps taken).
By TaxSetu Editorial Team · Last reviewed: 7 October 2026
Based on the Income-tax Act 2025, Income Tax Rules 2026 and CBDT notifications; sections per the Income-tax Act 1961 (as amended) with 2025-Act mappings where notified · Verify on the official portal: incometax.gov.in
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Frequently Asked Questions
NAV (rent minus municipal tax paid) minus flat 30% minus full home-loan interest. Let-out interest has no cap, but set-off vs salary is capped at ₹2L/year. House property guide.
Yes — flat 30% of NAV, no bills or proof needed, for every let-out property.
Yes, up to ₹2 lakh per year; the excess carries forward 8 years.
Yes — since Budget 2019 two self-occupied houses are exempt; the third is deemed let-out.