Rental yield in Bangalore: how to calculate gross and net yield

5.4.1 How do you calculate rental yield?

Rental yield is the yearly rent from a flat as a percentage of what the flat costs you. There are two versions. Gross yield divides the annual rent by the purchase price, and multiplies by 100. It is quick, but it ignores every cost of owning the flat. Net yield first deducts the owner’s yearly costs from the rent. It then divides the result by the total cost of buying, not only the price. The total cost includes stamp duty, the registration fee, GST on an under-construction flat, and the fit-out. Net yield is the number to use for a decision. Here is an example with round numbers. A flat costs ₹1 crore, and similar flats rent for ₹30,000 a month. The annual rent is ₹3,60,000, so the gross yield is 3.6 percent. These numbers are arithmetic, not a Bangalore rent estimate. The next section shows how costs reduce this figure.

Measure	Formula	What it leaves out
Gross yield	Annual rent ÷ purchase price × 100	All owner costs and the costs of buying
Net yield	(Annual rent − yearly owner costs) ÷ total cost of buying × 100	Loan interest, income tax and price changes
After-tax net yield	Net yield after the income tax on rent	Loan interest and price changes

5.4.2 How do you calculate net rental yield?

To calculate net rental yield, deduct the yearly costs of owning the flat from the rent, and divide by the full cost of buying it. Start with the rent for the months the flat is let, not for all twelve months. A gap between tenants is normal, so assume some vacant months. Then deduct the maintenance charges, the property tax, repairs, insurance, the brokerage to find each tenant, and any bills that you pay. Divide what remains by the total cost of buying. The example continues with assumptions, not market data. Take one vacant month, ₹48,000 of maintenance, ₹8,000 of property tax, ₹15,000 of repairs and insurance, and ₹15,000 of brokerage. Take the total cost of buying as ₹1.08 crore. The net income is ₹2,44,000, and the net yield is about 2.3 percent. That is well below the gross yield of 3.6 percent. Write down every assumption, so that you can compare two flats on the same basis.

Line (example only)	Amount
Rent for 11 months at ₹30,000	₹3,30,000
Less maintenance charges	₹48,000
Less property tax	₹8,000
Less repairs and insurance	₹15,000
Less brokerage for a new tenant	₹15,000
Net income	₹2,44,000
Total cost of buying	₹1,08,00,000
Net yield	About 2.3 percent

5.4.3 How is rent from a flat taxed?

Rent from a flat is taxed as income from house property under the Income-tax Act, 2025, so the tax reduces your real yield. Section 20 charges tax on the annual value of a property that you own. Section 21(1) says the annual value is the higher of two amounts. The first is the sum that the flat can reasonably be expected to fetch as rent. The second is the actual rent received or receivable. If the flat is vacant for part of the year and the actual rent is lower because of that, Section 21(2) uses the actual rent. Section 21(3) then reduces the annual value by the taxes of the local authority that you actually paid in the year, such as property tax. Section 22(1)(a) allows a standard deduction of 30 percent of that annual value. Section 22 lists no separate deduction for actual repair bills. Interest on a home loan for a let-out flat is a separate deduction. The home loan tax benefit chapter explains it. Ask a chartered accountant to work out your own tax.

Step (example only)	Rule	Amount
Rent received	Section 21(1) and 21(2)	₹3,30,000
Less property tax paid	Section 21(3)	₹8,000
Annual value		₹3,22,000
Less standard deduction of 30 percent	Section 22(1)(a)	₹96,600
Income from house property, before loan interest		₹2,25,400

5.4.4 What does a rental agreement cost in Karnataka?

A rental agreement in Karnataka carries stamp duty, and the rate depends on how long the lease runs. The IGR Karnataka table of stamp duty and registration fees lists leases in row 9. For a residential lease of up to one year, the stamp duty is 0.5 percent of a base amount, up to ₹500. The base is the average annual rent plus the advance, premium and fine.5 percent of the average annual rent plus the advance, premium and fine, up to a maximum of ₹500. For a lease of more than one year and up to ten years, the stamp duty is 1 percent of the same amount. For both, the registration fee is ₹5 for every ₹1,000 or part of it, with a minimum of ₹200. Count these costs each time you sign a new tenant. Keep a copy of the signed agreement and the rent receipts. You need them for your tax return, and they are the evidence of the rent you actually receive.

Lease type (IGR row 9)	Stamp duty	Registration fee
Residential, up to 1 year	0.5% of average annual rent + advance + premium + fine, maximum ₹500	₹5 for every ₹1,000, minimum ₹200
More than 1 year, up to 10 years	1% of average annual rent + advance + premium + fine	₹5 for every ₹1,000, minimum ₹200
More than 10 years, up to 20 years	2% of the same amount	₹5 for every ₹1,000, minimum ₹200

5.4.5 How do you estimate the rent for a flat you have not bought yet?

Estimate the rent from signed leases for similar, finished flats near the project, not from a builder’s forecast or a listing price. A listing shows what an owner asks, and the signed rent can be lower. Match the flats closely: the same configuration, a similar carpet area, a similar building age, the same furnishing and parking. Ask two or three local property managers what similar flats rented for in the last six months, and how long they stayed vacant. Use a range, not one number. Then work out the net yield at the low end of the range. For an under-construction flat, the rent starts only after possession and fit-out. Add those months to your plan, and allow for a late possession date. Rent also tells you little about resale. A flat can rent well and still be slow to sell. Check how many similar flats are listed for sale nearby, and for how long.

1. Find three to five similar, finished flats near the project.
2. Ask local property managers for signed rents, not listing prices.
3. Note the vacant months between tenants.
4. Work out the net yield at the low end of the rent range.
5. Compare it with your loan interest rate and your other options.

To compare projects by location, approvals and K-RERA status before you think about rent, Ask Sachi.