If you own a property and rent it out, there is a deduction worth 30% of that rental income sitting in the law, and you get it whether or not you spend a single rupee on the property. You do not need receipts. You do not need to have painted anything. It is flat, automatic and unconditional.
Plenty of landlords never claim it. Plenty of others claim it against the wrong number and quietly lose a few thousand rupees a year. And from April 2026 there is a third problem: the section number everyone has memorised no longer exists.
First, the thing that changed in April 2026
The Income Tax Act, 1961 was repealed on 1 April 2026 and replaced by the Income Tax Act, 2025. FY 2026-27 is the first year filed under the new Act.
Nothing about how rental income is taxed has been gutted. The 30% is still 30%. But the numbering has changed completely, and almost every article, spreadsheet and YouTube explainer still says “Section 24”. Here is the map:
| What it does | Old (1961 Act) | New (2025 Act) |
|---|---|---|
| Taxes income from house property | s.22 | s.20 |
| Annual value, municipal taxes | s.23 | s.21 |
| 30% standard deduction | s.24(a) | s.22(1)(a) |
| Interest on borrowed capital | s.24(b) | s.22(1)(b) |
| Pre-construction interest, in fifths | proviso to s.24(b) | s.22(1)(c) |
| ₹2 lakh cap, self-occupied | s.24(b) provisos | s.22(2) |
| Loss set off against salary, ₹2L cap | s.71(3A) | s.109 |
| Carry forward, 8 years | s.71B | s.110 |
| Default (new) regime | s.115BAC | s.202 |
One more piece of vocabulary: “previous year” and “assessment year” are gone. There is now a single tax year that matches the financial year. FY 2026-27 is simply tax year 2026-27.
How rental income is actually taxed
Four steps, in this order. The order is the whole point.
- Gross annual value. Broadly, the rent you receive for the year — or the property’s reasonable letting value if that is higher.
- Less municipal taxes actually paid by you during the year. This gives the annual value (s.21).
- Less 30% of that annual value (s.22(1)(a)).
- Less the full interest on any loan taken for the property (s.22(1)(b)).
What is left is your income from house property, and it gets added to your other income and taxed at your slab rate.
The four misses
Miss 1: not claiming the 30% at all
This is the expensive one, and it is more common than you would think — particularly among people with one flat let out, who declare the rent honestly and stop there.
On rent of ₹35,000 a month, the 30% is worth roughly ₹1.22 lakh of deduction. In the 20% bracket that is about ₹24,500 of tax. Every year. For doing nothing.
Miss 2: applying the 30% to gross rent
The 30% is calculated on the annual value — that is, after municipal taxes come off. Take 30% of the gross rent instead and your arithmetic is wrong in both directions at once: you have inflated the 30% slightly and skipped the municipal tax deduction entirely. The net effect is usually that you overstate your income.
Miss 3: paying municipal tax the wrong way
Municipal tax is deductible only if it was actually paid, by you, the owner, during the year. Three traps follow from that single sentence:
- If your tenant pays the property tax directly, you get no deduction for it.
- If the bill was raised but you have not paid it by 31 March, you get no deduction this year.
- Accrued-but-unpaid does not count, no matter how honestly it is recorded.
If you were going to pay it in April anyway, paying it in March is free money.
Miss 4: thinking the 30% covers your loan interest
It does not. Interest is a separate deduction, on top of the 30%, and for a let-out property there is no cap on it. The ₹2 lakh ceiling everyone quotes applies to a self-occupied home, not to one you rent out.
The flip side, and the reason the 30% is such a good deal: it is a flat allowance for repairs and maintenance regardless of what you actually spent. Spend nothing, still get 30%. But you also cannot claim your actual repair bills on top of it. It is one or the other, and the law has already chosen for you.
A worked example
A flat let at ₹35,000 a month, municipal tax of ₹12,000 paid by the owner in February, no home loan.
| Gross annual value (₹35,000 × 12) | ₹4,20,000 |
| Less municipal tax paid | (₹12,000) |
| Annual value | ₹4,08,000 |
| Less 30% standard deduction | (₹1,22,400) |
| Income from house property | ₹2,85,600 |
The landlord who declares ₹4,20,000 and claims nothing is offering up an extra ₹1,34,400 of income. In the 20% bracket that is about ₹26,900 of tax paid for no reason.
When there is a loan: the loss, and where the regimes split
Same flat, now let at ₹50,000 a month, municipal tax ₹18,000, and a home loan on which ₹5,20,000 of interest was paid.
| Gross annual value | ₹6,00,000 |
| Less municipal tax | (₹18,000) |
| Annual value | ₹5,82,000 |
| Less 30% | (₹1,74,600) |
| Less interest (no cap, let-out) | (₹5,20,000) |
| Loss from house property | (₹1,12,600) |
Now it matters a great deal which regime you are on.
Old regime. That ₹1,12,600 loss can be set off against your salary, up to a ceiling of ₹2,00,000 a year (s.109). For someone in the 30% bracket, that is about ₹33,800 of tax saved.
Default (new) regime. You still get the 30%. You still get the full interest. But the resulting loss cannot be set off against your salary or any other head. The deduction exists on paper and does nothing for you this year.
If the loss is bigger than the ₹2 lakh cap — say interest of ₹8,00,000 produces a loss of ₹3,92,600 — then ₹2,00,000 is set off this year and the remaining ₹1,92,600 is carried forward for up to eight tax years under s.110, to be used only against future house property income.
One honest caveat: whether an unabsorbed let-out loss can be carried forward while you are on the default regime is genuinely disputed among practitioners, and the position is not as settled as the confident blog posts suggest. If your loss is large enough for this to matter, it is worth a specific conversation with your CA rather than a rule of thumb.
The bit your tenant is supposed to handle
If the monthly rent crosses ₹50,000, TDS enters the picture — and it is the tenant’s obligation, not yours.
- An individual or HUF tenant paying more than ₹50,000 a month deducts 2%, once a year, usually in March or when the tenancy ends. (The rate was cut from 5% to 2% in October 2024 — a lot of tenants have not noticed.)
- A company or firm as tenant deducts 10%, once the annual rent crosses ₹6,00,000. That threshold was raised from ₹2.4 lakh in April 2025, which quietly took a lot of smaller commercial tenancies out of TDS entirely.
Either way the deducted amount is your tax, paid in advance. Check it appears in your Form 26AS or AIS, and claim credit for it when you file. Rent received net of TDS is still taxed on the gross figure.
What to actually do
- Pay the municipal tax yourself, before 31 March. It is the only part of this calculation you can still influence at year-end.
- Compute in the right order — municipal tax first, then 30%, then interest. Getting the order wrong is what produces the small, silent overpayments.
- If you have a loan on a let-out property, compare regimes before you file. A house property loss is one of the few remaining reasons the old regime can still beat the default one.
- Reconcile the TDS. If your tenant deducted, it should be visible in your AIS. If it is not, chase it before filing, not after.
- Stop quoting Section 24. For FY 2026-27 onward it is Section 22. It will matter the first time you have to correspond with the department about it.
Related calculators
- Rental Yield Calculator — what the property actually returns before tax
- TDS Calculator — check what your tenant should be deducting
- Old vs New Tax Regime Comparator — the comparison that decides whether your loss is worth anything
- Property Tax Calculator — the municipal tax that comes off before the 30%
- Income Tax Calculator — slab tax on the final figure
Applies to FY 2026-27 (tax year 2026-27), the first year under the Income Tax Act, 2025. Figures are illustrative and rounded; your own numbers will differ. General information, not personalised tax advice — for a large carried-forward loss, a co-owned property or anything involving an NRI landlord, speak to a chartered accountant.
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