Mr. Sharma is a salaried employee working in a private company in Delhi. He purchased a residential flat by taking a home loan and rented out the property.
During the financial year 2025-26, he received Rs. 5 Lakh as rental income from the said property and paid Rs. 1.5 Lakh as interest on the home loan taken for the property.
As the Income Tax Return (ITR) filing season approached, several questions came to his mind.
- Do I have to pay tax on the entire Rs. 5 lakh?
- Can I claim deduction of municipal taxes paid?
- I have opted for the new income tax regime. Can I claim a deduction for home loan interest?
If you have also earned rental income, you may have similar questions.
The good news is that tax is not calculated directly on the rent received. Even under the new tax regime, certain deductions are available while computing income from house property.
Let’s understand Mr. Sharma’s case step by step.
What You’ll Learn in This Article
In this practical case study, you will learn:
- How to calculate taxable rental income.
- How municipal taxes affect your taxable rental income.
- How the 30% standard deduction works.
- Whether you can claim a deduction for home loan interest under the new tax regime.
- Common mistakes landlords make while filing their Income Tax Return (ITR).
Mr. Sharma’s Situation
| Particulars | Amount |
| Annual Rent Received | Rs. 5,00,000 |
| Municipal Taxes Paid | Rs. 20,000 |
| Home Loan Interest Paid | Rs. 1,50,000 |
Since Mr. Sharma has opted for the new tax regime, let’s calculate his taxable income from house property step by step.
Step 1: Calculate Gross Annual Value (GAV)
Mr. Sharma rented out his residential flat for the entire financial year and received Rs. 5,00,000 as rental income.
Gross Annual Value (GAV) = Rs. 5,00,000
Step 2: Deduct Municipal Taxes
Mr. Sharma, being the owner of the property, can claim a deduction for the municipal taxes he actually paid during the financial year.
| Particulars | Amount |
| Gross Annual Value | Rs. 5,00,000 |
| Less: Municipal Taxes | Rs. 20,000 |
| Net Annual Value (NAV) | Rs. 4,80,000 |
Step 3: Claim Standard Deduction
Under Section 24(a), a standard deduction of 30% of the Net Annual Value is allowed for repairs and maintenance.
Calculation:
30% × Rs. 4,80,000 = Rs. 1,44,000
Step 4: Home Loan Interest Under the New Tax Regime
Under the new tax regime for a let out property, the full interest paid on the home loan can be considered as a deduction, without any ceiling limit. However, if the home loan interest you paid is more than the rental income you earned, it will result in a loss from house property.
Under the new tax regime, you cannot adjust this loss against your other income or carry it forward to future years.
Mr. Sharma paid Rs. 1.5 Lakh as home loan interest during the year.
Since Mr. Sharma has let out the property, the interest paid on the home loan is eligible for deduction while calculating income from house property under the new tax regime.
Therefore,
Deduction for Home Loan Interest = Rs. 1,50,000
Step 5: Calculate Final Taxable Income from House Property
| Particulars | Amount |
| Gross Annual Value | Rs.5,00,000 |
| Less: Municipal Taxes | Rs.20,000 |
| Net Annual Value | Rs. 4,80,000 |
| Less: Standard Deduction (30%) | Rs. 1,44,000 |
| Less: Home Loan Interest | Rs. 1,50,000 |
| Taxable Income from House Property | Rs. 1,86,000 |
Why Is the Entire Rs. 5 Lakh Not Taxable?
Many taxpayers believe that tax is calculated on the total rent received.
That is not correct.
The new tax regime first allows the deduction of:
- Municipal taxes actually paid by the owner
- Standard deduction of 30% of the Net Annual Value
- Interest paid on home loan for a let-out property
Only the remaining amount is taxable under the head Income from House Property.
Common Mistakes Landlords Make
- Paying tax on the entire rental income without claiming eligible deductions.
- Forgetting to deduct municipal taxes actually paid.
- Not claiming the 30% standard deduction.
- Reporting rental income under the wrong head while filing the ITR.
- Not keeping proof of municipal tax payments.
TaxStudyOnline’s Final Takeaway
Before calculating tax on rental income under the new tax regime, remember these important points:
- Tax is not calculated on the total rent received.
- Deduct municipal taxes actually paid by the owner.
- Claim the 30% standard deduction under Section 24(a).
- Claim home loan interest paid for a let-out property while calculating income from house property.
- Do not claim home loan interest for a self-occupied property under the new tax regime, as such deduction is not allowed for a self-occupied property.
- Deductions such as home loan principal repayment, stamp duty, registration charges, and other Chapter VI-A deductions are not available under the new tax regime.
- Under the new tax regime, you cannot adjust loss from house property against your other income.
- Under the new tax regime, you cannot carry forward loss from house property to future years.
- Maintain records of rent received and municipal tax payments.
- Report rental income under the head Income from House Property while filing your Income Tax Return.
Conclusion
Mr. Sharma’s case illustrates how rental income is taxed under the new tax regime.
Although Mr. Sharma received Rs. 5 Lakh as rental income, tax is not calculated on the entire amount. He can claim deductions for municipal taxes, the 30% standard deduction, and home loan interest while calculating his income from house property.
After considering these deductions, his taxable income from house property becomes Rs. 1.86 Lakh
Understanding the deductions available under the new tax regime can help landlords calculate their taxable income correctly, avoid errors while filing their Income Tax Return, and remain compliant with the Income Tax Act.
FAQs
1. Is rental income fully taxable under the new tax regime?
No. Rental income is taxed under the head Income from House Property after deducting municipal taxes actually paid , 30% standard deduction and the interest on home loan for let out property.
2. Can I claim the 30% standard deduction even if I did not spend anything on repairs?
Yes. The standard deduction under Section 24(a) is available irrespective of the actual repair or maintenance expenses incurred.
3. Can I claim home loan interest on a let-out property under the new tax regime?
Yes. Interest paid on a housing loan for a let-out property can be claimed while calculating income from house property under the new tax regime.
4. Can I claim home loan interest under the new tax regime if my property is not rented out?
No. Under the new tax regime, interest paid on a housing loan for a self-occupied property cannot be claimed.
5. Can I set off house property loss against salary income or other income under the new regime?
No. Under the new regime, loss from house property cannot be set off against salary income or any other income.
6. Do municipal taxes reduce taxable rental income?
Yes. Municipal taxes actually paid by the property owner during the financial year are deductible before calculating the 30% standard deduction.
7. Which ITR form should I file if I have rental income?
The applicable ITR form depends on your total income and sources of income. Taxpayers with house property income commonly file ITR-1 (if eligible) or ITR-2, depending on their individual circumstances.
