Rental Income from Inherited Property: Tax Guide

When you inherit a property and rent it out, the rental income is fully taxable under 'Income from House Property' in your income tax return. The good news is that you get a flat 30% standard deduction on the gross annual value, regardless of your actual expenses on the property.

The calculation works like this: Gross Annual Value (the rent you receive, or fair market rent, whichever is higher) minus Municipal Taxes paid minus 30% Standard Deduction equals Net Taxable Income from House Property. If you also have a home loan on the property, the interest paid is deductible up to ₹2,00,000 for a self-occupied property or without limit for a rented property.

Example: You inherit a flat and rent it out for ₹25,000 per month. Annual rent is ₹3,00,000. Municipal taxes paid: ₹15,000. Standard deduction: 30% of (₹3,00,000 minus ₹15,000) = ₹85,500. Your taxable rental income is ₹1,99,500.

Important: If you inherit multiple properties, only one can be treated as self-occupied with the ₹2,00,000 interest deduction cap. Others are treated as 'deemed let out' even if they are vacant, and you must declare a notional rent based on fair market value.

Document the property details, tenant agreements, municipal tax receipts, and any loan details in Sort My Legacy's inventory. This makes tax filing straightforward for whoever manages the property after you.