Rental Income in India: Complete Guide for 2025

What is Rental Income?

Introduction

Rental income is a popular passive income source for many Indians. With the steady growth of urban housing demand and commercial spaces, earning rental income can help you build wealth and secure steady cash flows.

However, many landlords are not fully aware of the tax on rental income, how GST on rental income works, or when TDS on rental income applies. Misunderstanding these rules can lead to tax penalties or loss of income due to non-compliance.

At Ultra, we help you make smarter financial choices. In this article, you’ll learn what counts as rental income, how it’s taxed, when GST and TDS apply, and ways to save tax on your rental earnings.

In India, rental income refers to the money you earn by renting out residential or commercial property. This could be:

• Rent from residential houses or flats

• Rent from commercial shops, offices, or industrial units

• Rental income from letting out land appurtenant to buildings

• Rent from sub-letting property

Under the Income Tax Act, rental income is classified under the head ‘Income from House Property’.

How is Rental Income Taxed in India?

Rental income is taxed annually under ‘Income from House Property’. The tax calculation is based on the Net Annual Value (NAV) of the property.

How to calculate tax on rental income:

• Gross Annual Value (GAV): Higher of actual rent received or reasonable expected rent.

• Less: Municipal Taxes Paid: Municipal taxes paid by the owner are deductible.

• Net Annual Value (NAV): GAV minus municipal taxes.

• Less: Standard Deduction (30% of NAV): A flat 30% deduction for repairs and maintenance, regardless of actual expenses.

• Less: Interest on Home Loan: If you have a home loan, you can claim interest deduction under Section 24(b).

The remaining amount is added to your total taxable income and taxed as per your income tax slab.

Is GST Applicable on Rental Income?

The question “Is GST applicable on rental income?” is common among landlords.

• Residential Property: If you rent out residential property for residential use, GST does not apply.

• Commercial Property: If you rent out commercial property and your total rental income exceeds Rs 20 lakh in a financial year, you must register for GST and charge 18% GST on rent.

• Mixed Use: If you rent residential property for commercial use (like a guest house for business stay), GST may apply.

TDS on Rental Income

Under Section 194I of the Income Tax Act, TDS on rental income applies if the rent paid exceeds Rs 2.4 lakh per year.

• Who deducts TDS: The tenant must deduct TDS at 10% and deposit it with the government.

• Landlord’s PAN: If the landlord does not provide PAN, TDS will be deducted at 20%.

• TDS Certificate: The tenant must provide a TDS certificate (Form 16A) to the landlord.

How to Save Tax on Rental Income

Here are a few ways landlords can reduce tax on rental income:

Claim Deductions: Always claim the standard 30% deduction and municipal taxes paid.

Home Loan Interest: If your property is mortgaged, claim interest deduction up to Rs 2 lakh for self-occupied property and unlimited for let-out property.

Joint Ownership: Owning property jointly with spouse or family helps split rental income and reduce individual tax burden.

Use HUF: Families can use a Hindu Undivided Family (HUF) to hold property and claim tax benefits.

Rent to Family Members: Renting at reasonable rent to family members reduces taxable value, but must be genuine and declared.

Penalty for Not Reporting Rental Income

Failure to report rental income is considered tax evasion and may attract penalties, interest, or even prosecution under Income Tax laws.

Rental Income vs Business Income

If you rent out property along with services like power backup, cleaning, or security, income may be taxed as Business Income instead of House Property.

Example: Leasing out furnished office spaces with maintenance and housekeeping services.

FAQs on Rental Income in India

Q1: Is rental income taxable in India?

Yes, rental income is taxable under the head ‘Income from House Property’.

Q2: Do I have to pay GST on residential rental income?

No, GST does not apply to residential properties rented for residential use.

Q3: Is TDS applicable on rental income?

Yes, if annual rent paid by a tenant exceeds Rs 2.4 lakh, TDS at 10% must be deducted.

Q4: How much tax do I pay on rental income?

Rental income is added to your total income and taxed as per your slab after deductions.

Q5: Can I save tax on rental income?

Yes, you can claim 30% standard deduction, municipal taxes paid, and interest on home loan.

Conclusion

Earning rental income is a great way to build passive income. However, landlords must understand the tax, TDS, and GST implications to avoid penalties and stay compliant.

At Ultra, we help you learn more about smart ways to earn, invest, and save taxes. For more such guides on investments, tax-saving instruments, and passive income, visit Ultra and make your money work smarter.