The Secret Formula Every Homeowner Needs to Know for Property Income Calculation 

Ravi, a first-time landlord, thought his ₹20,000 rent was straightforward. Until he learned about municipal taxes, standard deductions, and home loan interest. But what was his actual taxable income? Much less than he feared.”

What most people fail to understand is that their property is not merely brick and mortar. It is a crucial financial asset that you need to put to work. Calculate the income you can generate from this asset appropriately. Meanwhile, you have to report your income for tax filing, too. But how to calculate income from house property?

The Income From House Property Under The Income Tax Act of 1961 refers to the tax levied on rentals and other notional income from your owned property. To calculate the property income, you can follow four basic steps:

• Consider your Gross annual value, i.e., actual or projected rent

• Subtract the municipal tax from that to get the Net Asset Value 

• Further deduct the standard components like a 30% standard waiver-off, and your home loan interest 

The remaining amount is the income or loss generated from your property. In this article, we will take a deep dive into how to calculate income from house property in steps. Keep reading!

What’s Your Actual Income From House Property?

We will primarily discuss some statutory facts that apply to property owners here. Income from house property is taxed on its “annual value” in the hands of the owner under Section 22 of the Income‑tax Act, 1961 (ITA).

The property must consist of a building or land appurtenant thereto. At the same time, the property must not be used for the owner’s business/profession (else it falls under PGBP). 

Step-by-Step Analysis of Your Property’s Annual Value 

If you are wondering how to calculate income from house property, you have to estimate the property’s annual value to begin with. Initially, we will consider three primary elements that strongly affect the property’s annual value. These are:

Gross Annual Value (GAV) 

Under Section 23(1), GAV is generally the higher of

(a) expected rent, which is benchmarked to municipal rent value and capped by standard rent where rent control applies, and

(b) actual rent received;

Vacancy can reduce GAV to the actuals. However, homeowners must note that allowed unrealised rent is excluded from actuals. 

Unrealised rent conditions 

Unrealised rent is excluded only if Rule 4 conditions are met. However, if it is recovered later, it is taxed on receipt with a 30% deduction, as you will find in Sec. 25A of the Rule. 

Net Annual Value (NAV) 

From GAV, subtract municipal taxes actually paid by and borne by the owner during the whole year. It will give you the NAV value. Taxes merely due (not paid) or paid by the tenant are, however, not deductible.

How to Calculate Income from House Property In the Case of 2 Self-Occupied Properties? 

Under Budget 2019, two self‑occupied houses were permitted to have nil annual value. The latest Budget of 2025 further simplified Section 23(2).

Now, 2025‑26 onwards, two properties may be treated as self‑occupied (AV = nil) without the earlier conditionality of employment/business elsewhere (sub‑section (4) cap of two continues). In practice, this removes the notional rent on a second home that is kept vacant.

What Can You Always Deduct As Per Section 24? 

According to the leverages allowed by Section 24, you can deduct these by default:

New vs old tax regime note. Deductions under Sec. 24(b) for self‑occupied properties are not available if you opt for the new regime (Sec. 115BAC); for let‑out, interest continues (loss set‑off limits still apply). 

What You Can Set Off, and What You Cannot 

The Finance Act, 2017, inserted Section 71(3A) to cap the inter‑head set‑off of loss from house property at ₹2,00,000 per assessment year. The balance is carried forward for 8 AYs to set off only against income from house property.

The Delhi High Court upheld the constitutional validity of this cap in 2024. For TDS on salaries, CBDT instructed employers to restrict set‑off to ₹2,00,000 while computing monthly tax.

Implication 

Even if your let‑out interest is, say, ₹7.5 lakh and results in a ₹5 lakh loss under this head, only ₹2 lakh can reduce other heads (salary, business, etc.) in the same year. You can takke upto 8 years to clear the ₹3 lakh balance.

Quick treatment notes most filers miss 

• Vacancy allowance: If a property was actually let but remained vacant, GAV can be taken as actual rent received/receivable (if lower than expected rent)—a key relief in soft markets. 

• Arrears/unrealised rent on receipt: Taxed in the year of receipt (even if you no longer own the property), less 30%. 

• Co‑ownership: If co‑owners have definite and ascertainable shares, each computes income individually on their share (and each can claim Sec. 24(b) within limits).

• Municipal taxes timing: Deduct only when paid (cash basis for this item), and only if borne by the owner. However, keep challans at all costs.

How to Figure Out Gross Annual Value (GAV) 

Okay, so first things first—before you can calculate the property’s income, you need to know its Gross Annual Value. Sounds fancy, but it’s basically the expected yearly rent. Here’s how you nail it down: 

• Compare the Municipal Value and Fair Rent. Pick whichever is higher. 

• Next, check the Standard Rent (yep, the one under the Rent Control Act). If that applies, the lower of the two becomes your expected rent. 

• Finally, compare this expected rent with the actual rent you’re getting. The higher one wins and becomes your GAV. 

For example, let’s say Fair Rent is ₹20,000 a month and Municipal Value is ₹18,000. So far, ₹20,000 looks good. But if Standard Rent is ₹19,000, then you can’t go beyond that—it caps the expected rent. If your actual rent is ₹21,000, then GAV will be ₹21,000 × 12 = ₹2,52,000. Easy math, right? 

How to Work Out Net Annual Value (NAV) 

After getting the GAV, subtract the cleared municipal taxes during the year (and nope, the tenant’s payments don’t count). That gives you the NAV: 

NAV = GAV – Municipal Taxes Paid 

Here’s a quick example: 
Suppose your GAV is ₹3,00,000 and you paid ₹30,000 in municipal taxes. Then: 

NAV = ₹3,00,000 – ₹30,000 = ₹2,70,000 

This ₹2,70,000 figure is what you’ll use for further deductions under Section 24, like the standard deduction and home loan interest. This straightforward calculation makes the NAV assertion easier. 

Facts You Can’t Miss 

Getting the income from your house property right isn’t easy. But, how to calculate income from house property? Tax compliance is the first step. But the journey is longer than that. You can live in a self-occupied space.

Alternatively, you can live in a rented space too. The bottom line is that you must know the calculation. It helps you grab every deduction and tax break you’re entitled to. 

Experts argue that it is not right to leave money on the table. Tools like an “income from house property calculator” can save you a ton of headaches. Refer your queries to us if you still have confusion.

Here’s a guide you can follow. Plan, follow the rules without fuss, and let your property work for you. Your real estate should boost your financial health, not drain it.