Receiving Rent Every Month? Here's How Income Tax Works

Getting rent every month can feel like simple extra income. But when you sit down to file your ITR, questions quickly pile up - Do I pay tax on the full rent? Can I deduct maintenance expenses? What happens if I have a home loan? Does rent received through UPI need to be reported? What about TDS above INR 50,000?

The good news is that rental income isn't simply taxed on every rupee you receive. It is generally calculated under the ‘Income from House Property’ head, after allowing specific deductions.

The rules also changed in terminology with the Income Tax Act, 2025, which applies from Tax Year 2026-27. The core house-property deduction remains 30% of annual value.

Here's how the calculation actually works.

How is Rental Income Taxed in India?

For an owned residential or commercial property that's rented out, the broad calculation is –

(Annual Rent − Municipal Tax Paid − 30% Standard Deduction − Eligible Home Loan Interest = Taxable Rental Income)

Let’s understand this formula with an example - If you receive INR 4.8 lakh rent in a year, pay INR 20,000 in property tax, get a 30% deduction of INR 1.38 lakh, and pay INR 1.2 lakh as eligible home-loan interest. So, your taxable rental income would be INR 2.02 lakh.

Can Landlords Deduct Maintenance Expenses Separately?

This is one of the most misunderstood parts of rental taxation.

Generally, you don't get to deduct every individual expense such as painting, repairs, electricity, security, or insurance on top of the 30% standard deduction. The 30% deduction is specifically intended to cover such recurring property-related expenses.

This matters in situations where a tenant pays a combined amount described as ‘rent + maintenance’.

Simply changing the wording of the payment doesn't automatically change its tax character.

Real-world tax discussions show this confusion repeatedly, particularly where landlords ask tenants to split payments into ‘rent’ and ‘maintenance’ to avoid TDS. The Income Tax Department's own computation framework focuses on the actual rental arrangement and the annual value, rather than a label chosen merely to reduce tax.

Can You Claim Home Loan Interest Against Rental Income?

Yes. For a let-out property, eligible interest on borrowed capital can be deducted while calculating income from house property.

Under the current rules, interest on a loan used for acquisition, construction, repair, renewal or reconstruction of a let-out property can be deducted without the INR 2 lakh cap that applies to many self-occupied-property situations. However, the treatment of resulting losses against other income depends on the applicable tax regime and rules.

For example, if your annual rent is INR 6 lakh but substantial eligible home-loan interest is payable, your taxable house-property income can be considerably lower than the rent actually received.

What Happens if the Property Remains Vacant?

Vacancy doesn't always mean you have to automatically pay tax on a full year's hypothetical rent.

The annual-value rules take expected rent and actual rent into consideration. Where a property is let out but remains vacant during part of the year and the lower actual rent is because of that vacancy, the rules can allow the actual rent received or receivable to determine the annual value.

Keep records such as the rental agreement, advertisements, broker communications and dates of tenancy, especially if the property was vacant for a meaningful period.

Is TDS Applicable on Rent Above INR 50,000?

Yes, but it’s equally important to consider who is paying the rent.

For an individual or HUF (Hindu Undivided Family) covered by Section 194-IB, TDS is applicable where rent for a month exceeds INR 50,000. The current rate is 2%, and the deduction is generally made for the last month of the financial year or the last month of tenancy, whichever applies.

For other deductions covered by Section 194-I, rent for land/building is generally subject to 10% TDS, with the INR 50,000 monthly threshold now relevant under that provision as well.

So, a tenant paying INR 70,000 a month shouldn't assume that no TDS applies simply because the landlord says, ‘I'll pay my own income tax.’

TDS and the landlord's final income-tax liability are two different things. TDS is a mechanism for collecting tax at source; the landlord still reports the rental income in the ITR and gets credit for eligible TDS.

Does Receiving Rent through UPI Attract Extra Tax?

No. The payment method doesn't create a separate rental-tax rate.

Whether rent is received through bank transfer, UPI, cheque or another legitimate payment route, the income still has to be reported according to the applicable tax rules. Public taxpayer discussions also show that UPI itself isn't the issue; the important question is whether the rental income has been correctly disclosed.

For practical reasons, digital payments are usually easier to document. Keep the rent agreement, bank/UPI statements, property-tax receipts and TDS records together.

What about Co-owned Property?

If you and your spouse jointly own a rental property, the rental income is generally divided between you both based on your respective ownership shares.

For example, if you each own 50% of the property, each person would generally report 50% of the applicable rental income and claim deductions according to their share.

The fact that the rent is deposited entirely into one spouse's bank account doesn't automatically make the full rental income taxable in that person's hands. Your ownership details and supporting documents should match the income reported in your ITR.

What about GST on Rental Income?

Income tax and GST are separate.

Ordinary renting of a residential dwelling for use as a residence is covered by a GST exemption. Commercial property rentals can have GST implications depending on the property, recipient, and registration status.

So, GST becomes particularly relevant for owners of shops, offices, and commercial spaces.

Rental Income Tax: Documents Landlords Should Keep

Before filing your ITR, keep these records handy:

• Rent agreement.
• Rent receipts and bank statements.
• Municipal/property-tax receipts.
• Home-loan interest certificate.
• TDS Records (Form 26AS/AIS).