How to Save Tax on Rental Income in India (FY 2025–26)

Rental income can significantly impact your tax liability. With careful planning, you can minimize tax while staying fully compliant.
This blog explains all strategies, exemptions, and deductions applicable in FY 2025–26 / AY 2026–27.

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⭐ Who Should Read This Guide?

• Salaried individuals receiving HRA

• Landlords with one or multiple properties

• Real estate investors

• Professionals seeking optimal tax planning

• WonderTax clients looking for property income advice

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: What Is Taxable as Rental Income?

Rental income is the total income you earn from letting out property, including:

• House property rent

• Commercial property rent

• Agricultural land rent (if rent exceeds ₹5,000/month for non-agricultural purposes)

• Lease rentals

• Advance rent received

Important: Notional rent for self-occupied property is also considered under Section 23.

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: HRA — House Rent Allowance for Salaried Individuals (FY 2025–26)

Eligibility

• Salaried or pensioned employee receiving HRA as part of salary.

Exemption Formula (Updated FY 2025–26)

Exempt HRA = Minimum of:

1. Actual HRA received

2. Rent paid – 10% of salary

3. 50% of salary (metro) / 40% of salary (non-metro)

Salary for HRA = Basic + DA + Commission (if fixed)

Example:

• Basic = ₹50,000/month, HRA = ₹20,000/month, Rent = ₹25,000/month, City = Mumbai

• Rent – 10% salary = 25,000 – 5,000 = 20,000

• 50% of salary = 25,000

• HRA received = 20,000

• Exempt HRA = Minimum = ₹20,000

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: Income from House Property — Taxable Rules (2025)

1. Self-Occupied Property (SOP)

   • Annual Value = NIL

   • Interest on home loan = Max deduction ₹2 lakh under Section 24(b)

2. Let-Out Property

   • Annual Value = Rent received / receivable

   • Deduct municipal taxes paid

   • Deduct 30% standard deduction (repairs & maintenance)

   • Deduct interest on home loan

Example:

• Rent = ₹12 lakh/year, Municipal tax = ₹1 lakh, Interest = ₹2.5 lakh

• Net taxable = 12 – 1 = 11 → 30% standard deduction = 3.3 lakh → interest 2.5 lakh → taxable = 5.2 lakh

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: Section 80C & Other Deductions to Reduce Tax

• Principal repayment of home loan → qualifies under 80C

• Municipal taxes → deducted from Annual Value

• Interest on home loan (self-occupied) → Section 24(b)

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: Tax Planning Tips for Rental Income (2025)

1. Opt for Joint Ownership

   • Split rental income with spouse

   • Each can claim 30% standard deduction

2. Claim Municipal Taxes Properly

   • Deduct only the actual paid taxes

3. Use Home Loan Interest Strategically

   • Interest on let-out property unlimited

   • Interest on self-occupied property ≤ ₹2 lakh

4. Invest in Affordable Housing / Capital Gains Exemption

   • Sale of property → invest in 54EC bonds or new house under 54F

5. Consider HRA Exemption (Salaried)

   • Rent paid to own property can’t be claimed

   • Rent paid to parents → allow HRA exemption

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: Multiple Property Scenarios (Updated 2025)

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: Practical Example — Tax Saving (FY 2025–26)

• Owned 2 flats, Mumbai & Pune

• Rent received: Mumbai ₹30,000/month, Pune self-occupied

• Interest Mumbai ₹2 lakh, Pune ₹1.5 lakh

• Standard deduction: 30% Mumbai = 1.08 lakh

• Taxable rental = 3.6 – 2 – 1.08 = 0.52 lakh only

• Municipal taxes = ₹0.2 lakh → Net taxable = 0.32 lakh

Savings: Effective tax reduced from ~10–15% to 2–3% of rental income.

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: WonderTax Can Help You Save Tax on Rental Income

We offer:

• Rental income calculation & reporting

• HRA exemption calculation

• Home loan interest optimization

• Section 80C planning

• Filing ITR with property income

👉 Explore services: https://wondertax.in/contact-us/services

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: FAQs — Rental Income & Tax Saving (2025)

Q1. Can I claim 30% deduction on self-occupied property?

❌ No, only for let-out property.

Q2. Can I split property ownership with spouse for tax benefits?

✔ Yes, rental income & deductions can be split.

Q3. Can municipal taxes paid by tenant be claimed?

❌ No, only taxes paid by owner.

Q4. Can HRA exemption be claimed if living in own house?

❌ No, only for rented accommodation.

Q5. Is interest on second self-occupied property deductible?

❌ Taxable as let-out property (no limit on interest deduction).

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: Final CTA

Want to minimize tax on rental income for FY 2025–26?
👉 Let WonderTax calculate, optimize, and file your ITR efficiently.
https://wondertax.in/contact-us