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Property, Rental

Letting your Indian property with amenities: the composite-rent trap

Bundling furniture, amenities or services into one inseparable rent can cost you the 30% standard deduction.

You let your Indian property furnished, or with amenities and services, air-conditioning, maintenance, a car park, staff, for a single all-in rent. It seems simpler to charge one figure. But bundling the building with amenities into one inseparable rent can change how the whole thing is taxed, and cost you the valuable 30% standard deduction, because the income is no longer treated as house property. Splitting the rent, or not, has a real tax consequence. Here is how composite rent works for an NRI landlord.
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Last reviewed: 26 July 20266 min readReviewed by Preetesh Maloo, CA

The short answer

When you let a property together with furniture, amenities or services for a composite rent, the tax depends on whether the two can be separated. If they are separable, the building portion is taxed as house-property income, with the 30% standard deduction, and the amenities or services portion as other income. If they are inseparable, one indivisible letting, the whole composite rent is taxed as other income or business income, not house property, so you lose the 30% standard deduction entirely and can deduct only actual expenses. That difference can raise your Indian tax noticeably, so how the letting is structured matters.

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Related situations

Separable or inseparable decides the head

The tax turns on one question: can the rent for the building be separated from the charge for the amenities and services? If it can, the two are taxed separately: the rent for the building is income from house property under Section 22, with the flat 30% standard deduction, and the charge for the furniture, amenities or services is income from other sources under Section 56, on which you deduct the actual costs. That is the better outcome, because you keep the 30% deduction on the building rent.

If the letting is inseparable, though, a single indivisible arrangement where the building and the amenities go together and cannot sensibly be split, the whole composite rent is taxed as other income, or as business income if it rises to that, and not as house property at all. And here is the sting: once it is out of the house-property head, the 30% standard deduction is gone, and you can only deduct your actual expenses and depreciation. So the same cash rent can bear more tax simply because it was bundled inseparably.

Why it matters, and the NRI angle

The 30% standard deduction is generous, you get it whatever you actually spent, so losing it on an inseparable letting genuinely raises your tax. A furnished flat let for one all-in figure, with no split and the furniture integral to the deal, risks being treated as inseparable and taxed without the 30%. Structuring the tenancy so the building rent is clearly identified and separable, where that reflects reality, preserves the deduction.

For an NRI there is a withholding point that does not change with the head. Whatever the income is called, house property or other sources, the tenant still deducts TDS under Section 195 on the full sum paid to you, because it is all income to a non-resident. So the classification affects your final tax, through the deduction, but not the tenant's obligation to withhold. A practising CA structures and reports the composite rent to keep the 30% deduction where it genuinely applies, and computes the tax correctly where it does not.

What's involved

What the CA actually does

  1. 1

    We test separability

    We assess whether the building rent can be separated from the amenities, since that decides whether you keep the 30% deduction.

  2. 2

    We structure to keep the deduction

    Where it reflects reality, we help identify the building rent separately, so it stays house-property income with the 30% deduction.

  3. 3

    We compute an inseparable letting correctly

    Where the letting is genuinely inseparable, we tax it as other income on actual expenses, so the return is right.

  4. 4

    We reconcile the TDS

    We reconcile the Section 195 TDS the tenant deducts on the full rent, whichever head it falls under.

What to have ready

Documents you'll typically need

  • The tenancy agreement and the rent breakdown
  • What amenities, furniture or services are included
  • The actual costs of the amenities and services
  • Your PAN and residency details

Your destination country can change the details

Requirements differ from one consulate, university and visa route to the next, how recent the figures must be, how long funds must have been held, and which certificates are mandatory. We assemble the documents around the exact checklist you're applying under. To see how India's tax treaty with your country of residence affects related filings, set your country below or compare all 46 countries.

References on this page

  • Separable composite rent: the building portion is house-property income (30% deduction); amenities/services are other income
  • Inseparable composite rent: the whole is taxed as other income or business, not house property (Section 56)
  • So an inseparable letting loses the 30% standard deduction and allows only actual expenses
  • For an NRI, the tenant deducts TDS under Section 195 on the full sum whichever head it falls under

Frequently asked questions

Common questions

Because if the building and the amenities are let inseparably for one rent, the whole is taxed as other income, not house property, and the 30% standard deduction only applies to house-property income. You would then deduct only actual expenses.

By making the building rent separable and clearly identified, where that reflects reality. Then the building portion is house-property income with the 30% deduction, and only the amenities charge is other income.

A single rent that covers both the building and amenities, furniture or services. Its tax depends on whether the building and the amenities can be separated, which decides the head and the deduction.

No. Whether it is house property or other income, the tenant deducts TDS under Section 195 on the full sum paid to a non-resident. The classification affects your final tax through the deduction, not the withholding.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

House property standard deduction and interest cap

Right now: 30% standard deduction on net annual value

Where it works differently

The property is self-occupied
Interest deduction is capped at Rs 2 lakh under s.24(b).
Second proviso to s.24(b).
The property is let out
Full interest is deductible against rent, but the resulting LOSS that can be set against other heads is capped at Rs 2 lakh a year, with an 8-year carry-forward.
s.71(3A), from AY 2018-19. Frequently missed by leveraged NRI landlords.
The new tax regime applies
No set-off of house-property loss against other income at all.
s.115BAC restriction. NRIs are in the new regime by default.

Commonly got wrong

  • Full home-loan interest can be set against salary. Capped at Rs 2 lakh in the old regime, and disallowed entirely in the new regime.In the old regime you may deduct home-loan interest, capped at Rs 2 lakh for a self-occupied property, with the set-off against other income capped at Rs 2 lakh a year. In the new regime, which is the default, there is no set-off at all.

Related

If this matched your situation, these go further

Advance rent and security deposits on your Indian rentalGST on commercial rent for an NRI landlordRenting out a co-owned Indian property, and splitting the tax and TDSNRI ITR filing (we file for you)DTAA TDS recoveryForm 13 lower-TDS certificate (property sale)Rental income TDS calculatorForm 10F generator

Letting your Indian property furnished or with services?

Tell us what is bundled in the rent. A practising CA will keep the 30% deduction where it applies on a free call, no obligation.

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