Tax
Rental Income from Inherited Property: Tax Guide
Article
How rental income from inherited property is taxed, with the 30% standard deduction and real examples.
Published: 3 Apr 2026 · Updated: 2 Oct 2026
When you inherit a property and rent it out, the rental income is taxable under 'Income from House Property' in your income tax return. You get a flat 30% standard deduction on the net annual value (the annual value after municipal taxes), whatever you actually spend on the property. If you later sell it, the capital gains rules for inherited assets apply to the sale.
The calculation works like this: annual value (broadly, the rent you receive or the property's expected rent, whichever is higher) minus municipal taxes paid, minus the 30% standard deduction, equals your income from house property. If there is a home loan, the interest also reduces it. For a let-out property the interest is deductible in full, but under the old tax regime a loss from house property can reduce your other income by only ₹2,00,000 a year, with the rest carried forward for up to 8 years. Under the new regime, which is the default, a house-property loss can't be set off against other income.
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 own several houses, up to two can be treated as self-occupied, and under the old regime the interest deduction on them is capped at ₹2,00,000 in total. Under the new regime there is no interest deduction for a self-occupied home. Any other houses are treated as 'deemed let out' even if they are vacant, and you must declare a notional rent. Section numbers changed when the Income-tax Act 2025 took effect on 1 April 2026, but these rules carried over.
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.
General information, not legal, tax or financial advice. Laws and rules change, so check with a qualified lawyer or CA before you act.
