House Property Income in India: How It Is Taxed Under the Income Tax Act 2025

If you own a house or flat and rent it out — or occupy one that is not your primary residence — the Income Tax Act 2025 (Section 18) taxes that income. This guide covers the three situations the Act recognizes: let-out property, self-occupied property, and deemed let-out property.

Annual value — how Section 18 calculates your taxable income

The starting point is the annual value of the property. This is the rent the property could reasonably fetch in the open market, minus municipal taxes you paid during the year.

The Act uses the higher of two measures:

• Municipal rental value — the rateable value your municipal corporation assigns to the property
• Expected rent — what the property would earn if let out for a full year at current market rates

From this annual value, you subtract:

• Municipal taxes actually paid during the year
• The standard deduction — 30% of the annual value, regardless of actual repairs or maintenance costs

The result is your income from house property, which is added to your total taxable income.

Example — let-out property in Mumbai:

You own a 2BHK in Mumbai and rent it for ₹35,000 per month.

• Annual rent received: ₹35,000 × 12 = ₹4,20,000
• Municipal taxes paid: ₹12,000
• Annual value: ₹4,20,000 − ₹12,000 = ₹4,08,000
• Less 30% standard deduction: ₹4,08,000 × 30% = ₹1,22,400
• Taxable income from house property: ₹4,08,000 − ₹1,22,400 = ₹2,85,600

This ₹2,85,600 is added to your other income and taxed at your slab rate.

Self-occupied property — when annual value is zero

If a property is occupied by the owner for their own residence — and no rent is received or receivable — the annual value is nil. This is the most common situation for a first home.

However, the Act limits the deduction you can claim on a self-occupied property:

• Interest on home loan (Section 19): up to ₹2 lakh per year can be deducted
• No 30% standard deduction applies (since there is no rental income)

If you have a home loan of ₹50 lakh at 8.5% p.a. for 20 years, the first ₹2 lakh of interest is deductible. The remaining interest cannot be set off against other income — it is simply lost.

Exception: If you own multiple properties and one is self-occupied, you can elect which one is treated as self-occupied. The others are taxed as let-out properties. You would typically elect the property with the lowest expected rent to minimize tax.

Deemed let-out — owning but not renting is not always tax-free

If you own a house property that is neither let out nor self-occupied — for example, a second home that sits vacant — the Act treats it as deemed let-out. The annual value is calculated the same way as a let-out property, and the 30% standard deduction applies.

This prevents taxpayers from claiming a nil annual value on a property they are holding empty to avoid tax.

Deductions available on house property income

Two deductions apply after the annual value is calculated:

Deduction	Section	Amount	Applies to
Interest on borrowed capital	Section 19	Up to ₹2 lakh (self-occupied); no limit (let-out)	Home loan, repair loan
Municipal taxes paid	Section 18	Actual amount paid	All properties

Section 19 interest on let-out property has no upper cap. If you have a ₹1 crore home loan on a let-out property at 9% p.a., the full ₹9 lakh interest is deductible — but only against the rental income. Any excess interest cannot be set off against other income.

Home loan interest — self-occupied vs let-out

The tax treatment of home loan interest differs significantly:

Self-occupied (Section 19):

• Maximum deduction: ₹2 lakh per year
• Carried forward: excess interest cannot be carried forward either
• Must have a certificate of ownership and occupation

Let-out property:

• Full interest is deductible against rental income
• Any net loss from house property (interest > annual value after deductions) can be set off against other income, subject to a ceiling

Worked example — self-occupied vs let-out on the same property:

You own a flat worth ₹1 crore. You take a home loan of ₹70 lakh at 8.5% p.a. The annual interest is ₹5,95,000.

If you let it out at ₹50,000/month (₹6,00,000/year) and pay ₹15,000 in municipal taxes:

• Annual value: ₹6,00,000 − ₹15,000 = ₹5,85,000
• Less 30% standard deduction: ₹1,75,500
• Income before interest: ₹4,09,500
• Less interest: ₹5,95,000
• Net loss: ₹1,85,500 — can be set off against other income

If you self-occupy instead:

• Annual value: ₹0
• Less 30%: ₹0
• Less interest: ₹2,00,000 (capped)
• Net deduction: ₹2,00,000

At a 30% tax slab, the ₹2 lakh deduction saves ₹60,000 in tax per year.

Section 24 — pre-construction interest

If you buy an under-construction property, the interest paid before construction is completed is called pre-construction interest. Under the Income Tax Act 2025, this can be claimed as a deduction in five equal instalments, beginning in the year the construction is completed.

Points to watch

• Co-ownership: If two people jointly own a property, each is taxed on their share of the annual value.
• Rental income from commercial property: Shops, offices, and warehouses are also house property under the Act. The same rules apply, but the rental market rates differ significantly.
• Tenant is a family member: If you rent to a close relative at below-market rent, the Act may still assess the annual value at what the property could fetch in the open market.

How to report house property income in ITR

Use ITR-2 if you are a salaried individual with rental income, or ITR-3 if you have business or professional income alongside house property. The house property income is shown under the head “Income from house property” in Schedule HP.

Gather these before filing:

• Rent agreements or tenancy receipts
• Municipal tax payment receipts
• Home loan interest certificate from your bank (Form 16C or loan statement)
• PAN of tenant (if rent exceeds ₹2,40,000 per year — TDS of 5% applies above this threshold under Section 194-IB)

Sources

• Income Tax Act 2025, Section 18 — Income from house property (verified 2026-10-08)
• Income Tax Act 2025, Section 19 — Deductions from income from house property (verified 2026-10-08)
• CBDT FAQs on House Property Income (verified 2026-10-08)