Tax on Rental Income From a House in Bangalore: A Landlord's Guide
Rent from a flat or a house in Bangalore is taxed under its own head, income from house property, and the rules differ from those for salary or business income. This guide explains how a resident landlord works out the taxable figure, which costs count and which are ignored, how a home loan changes the sum, and when the tenant deducts tax from the rent. The rules below apply to the tax year 2026-27 under the Income-tax Act, 2025, which carried the earlier house property rules forward.
Who Pays Tax on the Rent
The owner of the property pays the tax, whoever collects the rent. Where a flat is held jointly, each co-owner is taxed on a share of the rent in line with the ownership share in the sale deed. Rent from subletting, or from a property the taxpayer does not own, is taxed as other income and follows different rules.
The head covers a building and the land attached to it. Rent from a vacant plot falls outside it. A landlord who lives abroad follows the same computation, but the tenant deducts tax at a much higher rate, which is a subject of its own.
The Computation in Four Steps
The taxable amount is built up in a fixed order, shown below.
- Start with the gross annual value, which is the rent for the year or the rent the property could fairly fetch, whichever is higher.
- Subtract the property tax actually paid to the civic body during the year, to reach the net annual value.
- Subtract a flat 30% of the net annual value as the standard deduction.
- Subtract the interest paid on a loan taken to buy, build, repair or renovate the property.
The result is added to the owner's other income and taxed at the slab rate. Where the home was vacant for part of the year and the rent received was lower for that reason, the actual rent is taken as the gross annual value.
What the 30% Deduction Covers
The 30% standard deduction is given without bills. It replaces every running cost of a landlord, so the actual spending is ignored whether it was higher or lower. A landlord who spent nothing on the flat still gets the full 30%.
The other side of the rule matters just as much. The costs listed below are covered by the 30% and bring no separate deduction.
- Monthly maintenance paid to the apartment association.
- Repairs, painting and replacement of fittings.
- Brokerage paid to find a tenant.
- Insurance premium on the building.
- Fees paid to a property manager.
Property tax is treated separately. It is deducted in full, in the year of payment, and only when the owner has paid it. Arrears of property tax paid this year count this year.
A Worked Example
Take a 2 BHK flat in Whitefield let at Rs. 40,000 a month, with property tax of Rs. 12,000 paid in the year. The figures are an illustration.
| Item | Amount |
|---|---|
| Rent for 12 months | Rs. 4,80,000 |
| Less property tax paid | Rs. 12,000 |
| Net annual value | Rs. 4,68,000 |
| Less 30% standard deduction | Rs. 1,40,400 |
| Taxable rent with no home loan | Rs. 3,27,600 |
A landlord in the 30% slab pays tax on Rs. 3,27,600, not on Rs. 4,80,000. If the same flat carries a home loan with interest of Rs. 5,20,000 in the year, the result turns into a loss of Rs. 1,92,400. The next section explains what happens to that loss.
Home Loan Interest and the Loss Rules
Interest on a let-out home is deductible in full, with no ceiling on the deduction itself. The Rs. 2 Lakh limit that buyers hear about applies to self-occupied homes. Principal repayment is a separate matter and plays no part in the house property computation.
The limit appears at the next stage. In the old tax regime, a house property loss of up to Rs. 2 Lakhs a year may be set off against salary or other income. Any loss above that is carried forward for eight years and used only against house property income. In the example, the full loss of Rs. 1,92,400 reduces the landlord's salary income.
The new tax regime is stricter. Interest on a let-out home is still deducted from the rent of that head, but a house property loss cannot reduce salary or other income. The loss is also not carried forward. A landlord with a large loan on a rented flat should compare both regimes before choosing one for the year.
Self-Occupied, Let-Out and Deemed Let-Out
The law sorts every house into one of three groups, and the tax treatment follows the group.
- Self-occupied: up to two homes may be treated this way, with an annual value of nil.
- Let-out: a home rented for all or part of the year, taxed on the computation above.
- Deemed let-out: a third or later home that is neither rented nor chosen as self-occupied.
A deemed let-out home is taxed on the rent it could fairly fetch, even when it is locked and earns nothing. The 30% deduction and the interest deduction apply to it as they do to a rented home. An owner with three or more homes chooses each year which two to treat as self-occupied, and the choice changes the tax.
TDS on Rent
Tax deducted at source applies only when the rent crosses Rs. 50,000 a month. The rate depends on who the tenant is.
- An individual or family tenant paying more than Rs. 50,000 a month deducts 2% of the rent.
- A company, firm or business tenant deducts 10% where the rent is above Rs. 50,000 a month.
An individual tenant makes the deduction once, in the last month of the tax year or of the tenancy, and needs only the landlord's PAN. On a rent of Rs. 60,000 a month, the 2% comes to Rs. 14,400 for a full year. The amount shows up in the landlord's annual tax statement and is claimed as credit in the return.
TDS is an advance payment, not the final tax. A landlord in the 30% slab still pays the balance through advance tax or with the return. A tenant who claims house rent allowance on rent above Rs. 1 Lakh a year also has to give the landlord's PAN to the employer.
Points Landlords Often Miss
A few smaller rules change the figure reported in the return.
- Rent for furniture or appliances charged separately is taxed as other income, without the 30% deduction.
- A refundable security deposit is not income, while an amount kept back for good is.
- Arrears of rent are taxed in the year of receipt, after a 30% deduction.
- Rent that a tenant never paid may be left out of the annual value if the conditions in the rules are met.
- Interest paid before the home was ready is spread over five years from the year of completion.
Co-owners should also hold separate records. Each one reports a share of the rent, takes 30% on that share and claims the interest actually paid on the loan.
Records to Keep for the Return
A clean file makes the return simple and answers most queries from the tax department. The papers to keep are a registered or stamped rent agreement, bank entries for each month's rent and the property tax receipts. The lender's interest certificate and the tenant's TDS certificate complete the set.
The rent in the return should agree with the tenant's TDS filing and with the annual information statement. A mismatch between the two is a common reason for a notice. The figures in this guide are general, and a chartered accountant should review a return that includes a loss, co-owners or more than two homes.
Buyers who plan to let a flat should work out the yield after tax and loan cost, not before. Our EMI calculator gives the monthly outgo on the loan. Our Bangalore page lists homes by locality, which helps in setting prices against the likely rent.
