What Amount of Rental Income is Tax-Exempt Under the New Tax Regime?
With the introduction of the new tax regime in India, many property owners are wondering how their rental income will be taxed. Let's break down what portion of rental income is tax-exempt and how to manage your liabilities smartly under the 2025 rules.
Rental Income Tax Exemption
₹0
No fixed portion of rental income is automatically exempt under the new tax regime
However, you can reduce tax liability if:
- Total taxable income remains below ₹3 lakh (basic exemption limit 2025)
- Interest on loan against let-out property is claimed
- Municipal taxes paid are deducted
- You opt for the old tax regime with deductions
Rental Income Under New vs. Old Tax Regime
Tax Regime Comparison for Rental Income
Old Tax Regime
- Standard deduction of 30% on net annual value (NAV)
- Interest on home loan (Section 24B up to ₹2 lakhs)
- Municipal taxes actually paid
- Depreciation on furniture (if applicable)
- Repair and maintenance costs
New Tax Regime
- No standard deduction of 30%
- Limited interest deduction available
- Municipal taxes can still be claimed
- Most other deductions not available
- Lower tax slabs but fewer exemptions
Note:
You can still claim deduction for municipal taxes paid and interest on home loan if the property is let out.
Is Any Rental Income Tax-Free?
No fixed portion of rental income is automatically exempt under the new regime. However, you can reduce your tax liability if:
- The total taxable income remains below ₹3 lakh (as per new basic exemption for individuals in 2025)
- Interest on loan against let-out property is claimed
Rental Income Tax Calculation Example
Annual Rental Income
₹3,60,000
Municipal Taxes Paid
₹15,000
Interest on Home Loan
₹80,000
Net Taxable Rental Income
₹2,65,000
*If this is your only income source, it falls below ₹3 lakh exemption limit
Tips to Save Tax on Rental Income
Smart Tax-Saving Strategies
Choose Right Regime
Opt for the old tax regime if you want to use deductions under 24B & 80C
Maintain Documentation
Keep proper records for municipal taxes and maintenance expenses
Co-ownership Strategy
Co-own the property to split the rental income and reduce tax burden
HUF/Trust Planning
Consider HUF or family trust arrangements for high rental yield properties
Additional Tax Planning Tips:
- Claim repair and maintenance expenses under old regime
- Consider taking a home loan to claim interest deduction
- Time your rental agreements to optimize tax liability
- Explore depreciation benefits on furniture and fittings
- Plan property purchases in spouse's name for tax optimization
Conclusion
While the new tax regime offers lower tax slabs, it eliminates most exemptions. If rental income is a significant part of your earnings, evaluate both regimes before filing. The key is to calculate your tax liability under both regimes and choose the one that results in lower tax. Always consult a tax expert for personalized advice based on your financial situation and property portfolio.
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