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How To Calculate Income Tax On Rental Income?

If you own two houses and let one house on rent then your second house will generate rental income so you will be have to pay tax on the income received as rent. On the other hand, if you own two houses and don’t let your second house on rent then also you have to pay tax as if your property is generating rental income. In other words, if you don’t let your second property on rent you will still be liable to pay tax based on the market rental value. So it is better for you let your second property on rent and pay taxes out of the total rent received by you for that particular financial year.

So from the above discussion it is clear that if you own more than one housing property then you will have to pay tax on the rental income. So to help people who earns rental income apart from salary here we will discuss “How To Compute Tax On the Rental Income?” So that they can file there return themselves i.e without the help of an Accountant or CA.

rental income

How To Compute Tax On the Rental Income?

Gross Rent : The gross rent for the computation of tax needs to be greater then the three values below:

  • The rental value fixed by the Municipal corporation based on your locality and property value.
  • The actual rent received by you during the financial year.
  • The rent of similar property in your locality i.e fair rent.


Say you are getting Rs 20,000 as rent for the let out property

Actual Rent Received (Actual) = Rs 20,000 * 12 = Rs 2,40,000

After computing the gross rental value you can deduct the municipal tax to arrive at net annual value of the rental income.


Municipal/ Property Tax Paid By You: Rs 8000

Net Annual Value = Gross Rent – Municipal Taxes

Net Annual Value = Rs 2,40,000 – Rs 8000

Net Annual Value = Rs 2,32,000

Then look what all Income tax deductions are available on the rental income received by you.

  • 30% of the net annual value for the purpose of repair, maintenance & rent collection expenses for the property.
  • Interest paid for the home loan on this particular property.
  • Property insurance premium paid this financial year for this property.


Repair & Maintenance = 30% of Rs 2,32,000 = 69,600

Interest Paid For Home Loan = Rs 35,000

Taxable Rental Income = Net Annual Value – (Repair & Maintenance Charges + Home Loan Interest Paid)

Taxable Rental Income = 2,32,000 – (69,600 + 35,000)

Taxable Rental Income =  Rs 1,27,400

After you compute the taxable rental income, you can show this income under the head ‘income from house property’ at the time of filing your tax return with your other incomes like salary etc. and then you will be taxed based on the tax slab you fall in.

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