Landlord's guide to rent and tax under the 2025 Act: TDS on rent, annual value and the 30% deduction

Rules and rates as of 12 October 2026.

If you let out a flat, two things happen at tax time. Your tenant may have to deduct tax from the rent and pay it to the government in your name, and you have to work out your own income from the property and report it in your return. Both now run under the Income-tax Act, 2025, in force from 1 April 2026, so the section numbers in most older guides no longer apply. This guide uses the new numbers and the Income Tax Department's own pages.

Is rent taxed as "income from house property"?

Yes. Section 20 of the 2025 Act charges the annual value of a building (and land attached to it) that you own under the head "Income from house property". The exception is any part you use for your own business or profession, whose profits are taxed. The rent you receive is the starting point, not the taxable figure.

Step 1: annual value (section 21)

For a let-out property, section 21(1) takes the higher of two numbers: the rent the property might reasonably fetch year to year, and the actual rent received or receivable. If the flat was vacant for part of the year and the actual rent falls short because of that vacancy, section 21(2) uses the actual rent instead.

• Municipal (property) taxes: section 21(3) lets you subtract taxes levied by the local authority, but only those actually paid by you, the owner, during the tax year. Tax the tenant pays, or tax still unpaid, does not count.
• Unrealised rent: section 21(4) excludes rent you cannot recover, subject to conditions in the rules. The department's guidance lists them: a genuine tenancy, a defaulting tenant who has left or is being made to leave, and reasonable steps to recover the money.
• Arrears collected later: under section 23, rent arrears or previously unrealised rent are taxed in the year you actually receive them, even if you no longer own the property, with 30% of that amount allowed as a deduction.

What is left is often called the net annual value.

Step 2: the two deductions (section 22)

Section 22(1) allows exactly two deductions from the annual value:

1. 30% of the annual value, flat. You do not need bills for repairs, painting or maintenance; this is a fixed allowance and nothing else on that line is deductible.
2. Interest on a loan taken to buy, build, repair or reconstruct the property. Interest for the period before the year of purchase or completion is spread in five equal parts over five years.

The ₹2 lakh ceiling on interest in section 22(2) applies to properties covered by section 21(6), that is, a home you live in or cannot occupy. For a let-out property, that ceiling does not apply to the interest deduction itself. Principal repayment is not part of this calculation.

What about deposits?

A refundable security deposit is money you hold and must return, so the department's guidance treats it as outside actual rent. Advance rent is also excluded until it is rent for the year. A non-refundable deposit is different: the guidance includes it in rent, spread over the period it relates to.

TDS: when your tenant must deduct

TDS on rent now sits in section 393(1) of the Act, Table serial number 2, which replaces the old sections 194-I and 194-IB.

• Serial 2(i): individual or HUF tenants who are not "specified persons" (in practice, most salaried tenants). If rent exceeds ₹50,000 for a month or part of a month, the tenant deducts 2%. Note 1 to the table says this is deducted once, when rent for the last month of the tax year (or the last month of the tenancy, if you leave earlier) is paid or credited. The department's FAQ says such tenants do not need a TAN, file a challan-cum-statement in Form 141 within 30 days from the end of the month of deduction, and give the landlord a certificate in Form 132.
• Serial 2(ii): companies, firms and other "specified persons", including individuals and HUFs whose business or professional receipts cross the limits given in the FAQ. Above ₹50,000 for a month or part of a month, they deduct 10% for land or building (2% for plant and machinery), at credit or payment, whichever is earlier. They file quarterly statements in Form 140 and issue Form 131.

No PAN, higher TDS. If the landlord does not give the tenant a PAN, section 397(2) requires deduction at the higher of the normal rate and 20%. For serial 2(i) tenants the FAQ caps this at one month's rent (the last month of the year or of the tenancy). A lower or nil deduction certificate can be sought from the assessing officer under section 395.

TDS is not an extra tax. It is credit against your own tax for the year, and it shows in your Annual Information Statement once the tenant has filed.

Worked example: a flat in Pune at ₹55,000 a month

Assume a full year let to a salaried individual tenant, rent ₹55,000 a month, property tax of ₹24,000 paid by the owner during the year, and home-loan interest of ₹1,60,000 on the loan used to buy the flat. Figures computed by us.

• Annual rent = ₹55,000 × 12 = ₹6,60,000 (taken as the annual value, assuming it is not below the rent the flat could reasonably fetch).
• TDS by the tenant (serial 2(i)) = 2% × ₹6,60,000 = ₹13,200, deducted from the March rent. If the tenant were a company (serial 2(ii)): 10% × ₹55,000 = ₹5,500 a month, ₹66,000 a year. With no PAN, 20% would be ₹1,32,000, capped for an individual tenant at one month's rent, ₹55,000.
• Net annual value = ₹6,60,000 − ₹24,000 = ₹6,36,000.
• 30% deduction = 30% × ₹6,36,000 = ₹1,90,800.
• Taxable house-property income = ₹6,36,000 − ₹1,90,800 − ₹1,60,000 = ₹2,85,200.

Item	Old regime	New regime (section 202)
Net annual value	₹6,36,000	₹6,36,000
30% deduction	₹1,90,800	₹1,90,800
Interest, let-out flat	₹1,60,000	₹1,60,000
House-property income	₹2,85,200	₹2,85,200
Same flat, interest ₹7,00,000 instead	Loss ₹2,54,800: ₹2,00,000 set off against salary, ₹54,800 carried forward	Loss ₹2,54,800: none set off against salary that year

Why are the first four rows identical? Section 202(2) of the new regime removes the section 22(1)(b) interest deduction only for section 21(6) properties (the home you live in). A let-out flat keeps it. The difference shows when interest is large enough to create a loss: the new regime bars setting off a house-property loss against any other head, while under the old regime section 109 allows up to ₹2,00,000 against other income, with the rest carried forward under section 110. The ₹2,85,200 is then added to your other income and taxed at your slab rate; the ₹13,200 TDS is credited against that tax.

Declaring it in your return

Report the property in the house-property schedule of your return: the tenant's name and PAN if you have it, the rent, municipal tax paid, and interest. Match the TDS you claim to the figure in your Annual Information Statement and Form 132 or 131. If the tenant deducted but the credit does not appear, the tenant has to file or correct the Form 141 or 140 statement. Keep the property-tax receipts and the lender's interest certificate with your records. A chartered accountant can confirm which return form applies to your mix of income.