Gross and net rental yield.
Net rental yield
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Gross yield
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Net annual income
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Your breakdown
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Gross yield flatters, net yield tells the truth
Rental yield is simply the annual rent expressed as a percentage of what the property is worth. Brokers love to quote the gross version, because it ignores every cost of actually owning the place. Net yield is the number that should drive a buy decision: it strips out society maintenance, municipal property tax, repairs, and the weeks the flat sits empty between tenants. The gap between the two is rarely trivial. A flat advertised at a 3% gross yield can quietly deliver well under 2.5% net once you account for a month of vacancy and a maintenance bill. This tool computes both and applies a vacancy haircut so the headline figure reflects rent you are likely to actually collect, not the rent on a lease that runs twelve uninterrupted months.
The Indian residential reality: 2% to 3%
If your net yield comes out near 2% to 3%, you are not doing anything wrong, that is simply where the Indian residential market sits. Property prices in Mumbai, Bengaluru, Pune, and Delhi NCR have run far ahead of rents for years, which mathematically crushes yields. This is why seasoned investors here say residential property is an appreciation play, not an income play. The cash yield barely beats a savings account, so the entire investment case rests on the capital value rising. Commercial property, REITs, and smaller cities tell a different story, often throwing off 6% to 9%, which is why income-focused investors increasingly look beyond a second flat in the metro they already live in.
Worked example: a ₹1 crore flat renting at ₹25,000
Take a property valued at ₹1 crore, let out at ₹25,000 a month, with ₹40,000 a year going to maintenance and property tax, and a 5% vacancy allowance to cover the gap between tenants. The steps below show how the gross 3% shrinks to a net 2.45%.
Just over half a percentage point evaporates between gross and net, and that is before income tax on the rent. The chart shows the two side by side against the 3% line that roughly marks the metro ceiling.
Tax turns net yield into take-home yield
Even the net yield above overstates what reaches your pocket, because rent is taxable as income from house property. The good news is you do not pay tax on the full rent. You first knock off the municipal taxes you actually paid, then claim a flat 30% standard deduction under Section 24(a) on the balance, no bills required, meant to cover repairs and upkeep. If you bought with a loan, the interest is also deductible. On the ₹2.45 lakh net income above, the 30% standard deduction alone shields a large slice before your slab rate touches the rest. When you compare a rental flat against a fixed deposit or a debt fund, run the comparison on this post-tax, post-vacancy basis, not on the glossy gross number a listing quotes.
Should I use the purchase price or current market value?
Use current market value for a true picture of what your capital is earning today. Using the old purchase price inflates the yield and hides the opportunity cost of a property that has appreciated. If the flat has doubled in value, the rent has to double just to hold the yield steady.
Is a 2.5% yield reason enough to sell?
Not on its own. A low yield only signals weak rental income, not weak total return. If the area is appreciating strongly, the capital growth can more than compensate. The yield matters most when appreciation has stalled and the flat is just a low-earning, illiquid asset, which is when many investors choose to exit.