Gross vs Net Rental Yield in India: What a 3% Flat Actually Earns
Every yield you are quoted is a gross yield. It is the number in the listing, in the broker's pitch, and in most published city tables, and it is annual rent divided by price, with nothing taken out. The number you actually live on is the net yield, which is what remains after the flat has been maintained, taxed, insured, left empty between tenants, and re-let. On an Indian metro flat the gap between the two is larger than the usual estimate, and this page works out exactly where it goes.
Every figure below comes from the site's own rental yield calculator, on the numbers it opens with. You can change any of them and watch the gap move.
One flat, two yields
Take an ₹80 lakh metro flat let at ₹20,000 a month. That is ₹2,40,000 of rent a year, and the arithmetic of the gross yield is the easy part:
Gross yield = (₹2,40,000 ÷ ₹80,00,000) × 100 = 3.00%.
Now hold the same flat for a year as a landlord would. Society maintenance runs ₹42,000, property tax ₹12,000, and insurance ₹3,500. A tenant stays three years and the flat sits empty a month between tenancies, so a little rent never arrives. Each new tenancy costs a month of rent in brokerage and ₹40,000 to repaint. Spread those across the cycle and the year looks like this:
| Annual figure | Amount |
|---|---|
| Rent invoiced | ₹2,40,000 |
| Society maintenance | ₹42,000 |
| Brokerage and repainting, per year of the cycle | ₹19,459 |
| Property tax | ₹12,000 |
| Rent lost to the empty month | ₹6,486 |
| Insurance | ₹3,500 |
| Total taken out | ₹83,446 |
| Kept | ₹1,56,554 |
Net yield = (₹1,56,554 ÷ ₹80,00,000) × 100 = 1.96%.
The flat earns ₹13,046 a month, not ₹20,000. More than a third of the gross yield, 1.04 percentage points of the 3.00%, never reaches the owner.
The cost almost nobody counts
Look at the order of that table. The second largest cost is not property tax and it is not insurance. It is brokerage and repainting, at ₹19,459 a year, larger than the two of them together.
It is the cost that gets left out of yield calculations, because it does not arrive as a yearly bill. It arrives all at once, every few years, when a tenant leaves: one month of rent to the broker who finds the next one, and ₹40,000 to make the flat presentable again. Here that is ₹60,000 landing every 37 months. Averaged over the cycle it is ₹19,459 every year, and a landlord who ignores it is not describing an ordinary year, only a lucky one.
The empty month is the smaller sibling of the same problem, and worth ₹6,486. Together, the simple fact that tenants leave costs this flat ₹25,945 a year, or 0.32 percentage points of yield.
Why the usual answer is "0.5 to 1.0 points"
The commonly quoted drag between gross and net, the one we have used ourselves in our city-by-city yield data, is 0.5 to 1.0 percentage points. That range is right for the costs it counts: maintenance, property tax, insurance, repairs, and vacancy. On this flat those alone come to 0.80 points, squarely inside it.
Add the cost of re-letting and the drag reaches 1.04 points. Neither figure is wrong. They are answers to different questions, and the wider one is the one a landlord banks.
A flat costing ₹35 lakh less, earning the same
Now run a tier-2 flat through the same engine: ₹45 lakh, let at ₹18,000, with maintenance of ₹24,000 and property tax of ₹8,000 to match a cheaper building. Everything else holds.
| Metro flat | Tier-2 flat | |
|---|---|---|
| Price | ₹80,00,000 | ₹45,00,000 |
| Monthly rent | ₹20,000 | ₹18,000 |
| Gross yield | 3.00% | 4.80% |
| Net yield | 1.96% | 3.46% |
| Kept per month | ₹13,046 | ₹12,988 |
The two flats put almost the same money in a pocket, ₹58 a month apart, and one of them costs ₹35 lakh less to buy. As income assets they are not close: the cheaper flat returns 3.46% where the metro flat returns 1.96%. This is the arithmetic behind the higher yields tier-2 cities post, and it is a point about income only. The metro flat may still be the better purchase if you expect its price to grow faster, or if you intend to live in it, neither of which yield can see.
Note also that the tier-2 flat loses more of its gross yield, 1.34 points against 1.04. Costs do not shrink in proportion to price. A repaint costs what it costs, and on a cheaper flat it is a bigger share of the rent.
What the flat would have to do
A yield on its own is hard to act on. The useful figure is the distance to the bar. Against the 3.5% gross benchmark for metros, which is the middle of the band our own benchmark guide settles on, the ₹80 lakh flat is short in two directions at once:
- It would need ₹23,333 a month in rent, ₹3,333 more than it gets, to reach 3.5% gross.
- Or it would need to have been bought for ₹68.6 lakh, ₹11.4 lakh below the asking price, for today's rent to reach 3.5%.
Two more gaps matter as much. A loan against this flat costs around 8.75%, and the flat nets 1.96%, so rent covers the interest on borrowed money by nowhere near enough: the shortfall is 6.79 percentage points a year. The same money in an index fund at 10% would beat the net rental income by 8.04 points. Rental income alone does not carry a metro flat in India, and it is not supposed to. Appreciation and the value of living in your own home are the rest of the case.
The same number, read from the tenant's side
A 1.96% net yield says something precise to a renter too, and it is not the mirror image of bad news. It means the tenant occupies an ₹80 lakh asset for ₹2,40,000 a year, of which the owner keeps ₹1,56,554. Renting is cheap relative to what the flat is worth, and the money not spent on a down payment stays invested. That advantage is real, and it is not unlimited: rent rises every year while an EMI does not, which is the arithmetic worked through in the full ten-year bill for renting.
Low yields are informative for both sides. They tell a buyer that the price is high relative to the rent, and they tell a renter that the asset is cheap to use.
What net yield still cannot tell you
Net yield is a property-level ratio. It describes the flat, not your purchase of it, and it is blind to four things that usually decide the question: the loan and what it costs, how long you will hold, what the price does over that period, and what the same money would earn elsewhere. A 1.96% net yield is not a verdict on buying, only a measurement of the income half of it.
So the yield calculator screens, and it hands off. Work out the gross and net pair on any flat you are considering with the rental yield calculator, then take the shortlist that survives to the property investment calculator, which adds the loan, the holding period, and the alternative use of your money and settles the question the ratio can only frame.
Net rental yield questions, answered
What is the difference between gross and net rental yield?
Gross yield is annual rent divided by price, with nothing deducted. Net yield subtracts what owning the flat costs: society maintenance, property tax, insurance, the rent lost while it sits empty, and the brokerage and repainting that each new tenancy brings. Gross is the number you are quoted. Net is the number you keep.
How much lower is net yield than gross in India?
Counting maintenance, tax, insurance, and vacancy, the drag is usually 0.5 to 1.0 percentage points. Counting the cost of re-letting as well, it runs past a point: 1.04 points on the ₹80 lakh metro flat above, and 1.34 on a ₹45 lakh tier-2 flat, where fixed costs are a larger share of a smaller rent.
Is a 2% net rental yield bad?
It is normal for an Indian metro, and it is well below a fixed deposit, so as an income asset the flat is weak. Whether that makes it a bad purchase depends on price appreciation and how long you hold, which yield does not measure. It is a reason to run the full comparison rather than a reason to walk away.
Should I use gross or net yield to compare properties?
Use gross to screen quickly, since it needs only rent and price and is the figure published sources quote. Use net before committing to anything, because two flats with the same gross yield can differ by a percentage point once maintenance and tenant churn are counted. Compare net against other investments, never gross.
Does net yield include income tax?
Not here. The figures above are pre-tax, as they are everywhere on this site, because the rate depends on your slab and on deductions such as the 30% standard deduction on let-out property and interest set-off. Your after-tax return will be lower than the net yield shown.