Rental Income Is Taxable — But Deductions Reduce the Burden
Most Pune landlords know rental income is taxable but underutilise the legal deductions available. The effective tax on rental income after all deductions is often 30–50% lower than the gross rental amount — sometimes eliminating tax liability entirely. This guide covers the full calculation.
Step 1: Calculate Gross Annual Value (GAV)
Rental income is taxed under “Income from House Property.” The calculation starts with Gross Annual Value:
GAV = Higher of:
- Actual rent received in the year (12 months × monthly rent)
- Expected fair rent (municipal valuation or standard rent)
For most Pune landlords, actual rent received equals GAV — the municipal valuation is typically lower than market rent.
Example: ₹22,000/month rent → GAV = ₹2,64,000/year
Step 2: Deduct Municipal Taxes
Net Annual Value (NAV) = GAV − Municipal taxes paid
Property tax paid to PMC/PCMC during the financial year is fully deductible.
Example: GAV ₹2,64,000 − Property tax ₹18,000 = NAV ₹2,46,000
Step 3: Standard Deduction — 30% of NAV
Section 24(a): 30% of NAV is allowed as standard deduction — no documentation required. This covers repairs, maintenance, depreciation, insurance. You don’t need receipts.
Example: NAV ₹2,46,000 × 30% = ₹73,800 deduction
Step 4: Home Loan Interest Deduction — Section 24(b)
For let-out (rented) property:
- Full home loan interest is deductible — no upper limit (unlike self-occupied where ₹2 lakh cap applies)
- Applies to interest on loan taken for purchase, construction, or renovation
This is the most powerful deduction for Pune buy-to-let investors. If you have a ₹60 lakh loan at 8.5%, annual interest ≈ ₹5.1 lakh — this full amount reduces your taxable rental income.
Example: If interest = ₹2,80,000/year, deduct fully.
Full Calculation Example
Property: 2 BHK in Tathawade — ₹65 lakh purchase, ₹50 lakh home loan at 8.5% Rent: ₹22,000/month
| Item | Amount |
|---|---|
| Gross Annual Value (GAV) | ₹2,64,000 |
| Less: Municipal taxes (PCMC) | ₹(15,000) |
| Net Annual Value (NAV) | ₹2,49,000 |
| Less: Standard deduction 30% | ₹(74,700) |
| Less: Home loan interest | ₹(4,25,000) |
| Net taxable income from property | ₹(2,50,700) — Loss |
Result: Net loss of ₹2.5 lakh from this property. This loss can be set off against your salary income (up to ₹2 lakh cap under current rules), reducing overall tax liability.
TDS on Rent — Tenants’ Obligation
If monthly rent exceeds ₹50,000: The tenant (if the tenant is a company or individual paying as business expense) must deduct TDS at 10% under Section 194-IB.
For residential tenants: Individual tenants renting for personal use must deduct TDS at 5% under Section 194-IB if annual rent exceeds ₹6 lakh (₹50,000/month).
Landlord implication: If tenant deducts TDS, it shows in your Form 26AS — you claim credit for TDS against your final tax liability.
Set-Off of Loss from House Property
If deductions exceed rental income (common when home loan interest is high), the resulting “loss from house property” can be:
- Set off against salary income — up to ₹2 lakh per year
- Carried forward — remaining loss can be carried forward 8 years against future house property income
GST on Residential Rental
Residential property rented for residential use: No GST applicable, regardless of rent amount.
Commercial property rented: GST at 18% applies if landlord is GST-registered and annual rental income exceeds ₹20 lakh.
Most Pune residential landlords are not affected by GST.
Key Forms and Filings
| Requirement | Form | Deadline |
|---|---|---|
| Rental income declaration | ITR-1 (salary + one property) or ITR-2 | July 31 (or extended deadline) |
| Home loan interest certificate | From lender annually | February/March |
| Property tax receipt | From PMC/PCMC | Annual payment |
| TDS certificate from tenant | Form 16C | Within 15 days of TDS deposit |