Income from House Property — How It’s Computed

Whether you own one flat you live in or several you rent out, this is the tax head that governs it. The computation method is deceptively simple once you understand the two property categories.

Self-Occupied Property

•             Annual value: Deemed to be Nil — you don’t pay tax on notional rental income for a house you live in.

•             Deduction available: Only home loan interest, capped at ₹2,00,000/year (old regime only) — this creates a loss from house property if you have a loan.

•             You can treat up to two properties as self-occupied (a rule change from the earlier one-property limit); any additional properties are deemed to be let out, even if vacant.

Let-Out (Rented) Property

The computation flows through several steps:

1.          Gross Annual Value (GAV): The higher of actual rent received or the property’s reasonable/expected rent (based on municipal valuation, fair rent, or standard rent).

2.          Less: Municipal taxes paid (only if actually paid by the owner during the year).

3.          Net Annual Value (NAV): GAV minus municipal taxes.

4.          Less: Standard deduction of 30% of NAV — a flat deduction regardless of actual repair/maintenance expenses incurred.

5.          Less: Home loan interest — no upper cap for let-out property (unlike the ₹2 lakh cap for self-occupied).

6.          Result: Income (or loss) from house property.

Worked Example

A flat rented out for ₹40,000/month (₹4,80,000/year), with ₹15,000 municipal tax paid and ₹3,50,000 home loan interest for the year:

•             GAV: ₹4,80,000

•             Less municipal tax: ₹4,65,000 (NAV)

•             Less 30% standard deduction: ₹4,65,000 − ₹1,39,500 = ₹3,25,500

•             Less interest: ₹3,25,500 − ₹3,50,000 = −₹24,500 (a loss)

Set-Off of House Property Loss — The New Regime Restriction

•             Old regime: A house property loss can be set off against any other head of income (salary, business, etc.) up to ₹2,00,000 in the same year; any excess can be carried forward for 8 years, to be set off only against future house property income.

•             New regime: House property loss cannot be set off against other heads of income at all — it can only be carried forward and set off against future house property income.

Frequently Asked Questions

Q1. Do I need to pay tax on a vacant property I own but don’t rent out? If it’s your first or second self-occupied property, no — but a third (or subsequent) vacant property is treated as “deemed to be let out” and taxed on notional rental value, even if it earns you nothing.

Q2. Can I claim the 30% standard deduction even if I didn’t spend anything on repairs? Yes — the 30% deduction is a flat, presumed allowance regardless of actual expenditure; you cannot claim more even if actual repair costs were higher, nor is it reduced if you spent nothing.

Q3. Is municipal tax deductible even if my tenant paid it directly? No — only municipal taxes actually paid by the owner during the year are deductible; if the tenant pays them directly, the owner cannot claim this deduction.

Reflects rules applicable for Tax Year 2026-27.