When property prices are soaring and urban rent eats up nearly half of monthly salaries, there is a new trend catching fire in Indian cities: house hacking. It is a clever real estate strategy wherein you live in your property while earning rental income. So, imagine a house ownership with a side hustle baked in, which is not limited to passive income, but contributes to the making of a lifestyle and an expression of growing appetite for flexible, affordable living spaces in India.
What is house hacking?
House hacking, in its true essence, is a smart guide to making income from very little capital. It is a sharp real estate strategy that allows people to reduce (or eliminate) their living expenses by renting out parts of their own property while living in it themselves. So basically, the concept is simple but powerful: you purchase a property (usually with the help of a home loan) and then rent out extra rooms, a separate unit, a floor, or even space on your rooftop or basement to tenants, paying guests, or short-term renters; sky is the limit. The rental income can then help you cover your EMI (maybe for your home loan, or home upgrades), utility bills, and sometimes even yield a profit.
While it has always been common in the first world, it is rapidly gaining traction in Indian metros and Tier-2 cities.
Evolution of house hacking in India
While the term “house hacking” is relatively new to the Indian vocabulary, the practice itself has deep cultural roots. Traditionally, Indian families have hosted tenants in independent homes, often renting out ground or top floors while residing on a different level, so both tenants and landlords are private. Paying guest accommodations or PGs, too, have long been a norm in student hubs and tech cities, so much so that there are businesses around this like Stanza Living, Zolostays, Housr, Alexandro Spaces, Ashray Living, etc, that actively list spaces, vet tenants, and automate rent collection. The Covid-19 and WFH culture also played a pivotal role as it prompted people to rethink the use of their homes in times of massive layoffs, creating income zones from idle space became more acceptable, even aspirational.
Why house hacking is trending among Indian millennials and Gen Z
House hacking perfectly aligns with the millennials and GenZ values, as there is financial independence and passive income in the times of inflation. For starters, this generation is less fixated on the old-school idea of owning a home just for pride or legacy: they see property as a tool for freedom, not just stability. Faced with high rents, delayed wealth accumulation or strategic investment, and unstable job markets, this new generation of young Indians is drawn to strategies that help them live smarter and house hacking offers just that: you can live in a desirable location, reduce debt burden, and generate consistent passive income; all from a single asset. Must not forget that this generation is highly tech-savvy; they leverage tools for digital payments, smart home devices, and even rental automation, making the house hacking process more seamless and scalable for themselves.
House hacking vs traditional real estate investing
At its core, house hacking is a low-risk, high-leverage strategy, while in traditional real estate, the investment often requires more capital, risk appetite, and time commitment. But there are more ways in which they differ:
- Investment size: Traditional investing typically involves buying a second property outright to put it on rent; in contrast, house hacking allows you to start with a single home purchase and still reap rental benefits, which enables financial advances.
- Risk exposure: The traditional investing carries higher vacancy risks, maintenance responsibilities, and market volatility; in the case of house hacking, it spreads the risk (since you live in the same property), making it easier to manage issues quickly and stay cash-flow neutral or positive. Any maintenance cost is spent on your own property, so it is easier to cope with.
- Purpose: House hacking is part lifestyle, part financial strategy, while traditional investing is primarily income-driven.
- Tax treatment: Both offer tax benefits, but house hackers may get unique deductions related to self-occupied + rental use (we will explore this in detail later in the article).
- Flexibility: House hacking can be short-term (e.g., renting during festivals, semester-wise for students or tourist seasons), while traditional real estate is usually a long-term, locked-in commitment.
Models of house hacking in India
House hacking isn’t a one-size-fits-all strategy. In India, it adapts beautifully to the country’s unique real estate structures, urban density, and rental culture, so mentioned below are some models that can help you effectively offer house hacking services:
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Renting out extra bedrooms
This is the simplest and most accessible form of house hacking: if you have a spare bedroom (or even two), you can rent it out to a student, working professional, or solo traveller. Be clear about house rules, timings, kitchen usage, and visitor policy to avoid future disputes. This setup works best in metro cities with a high influx of job seekers and students: think Bengaluru, Pune, or Gurgaon.
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Duplex or multi-unit properties
If you own a duplex, a row house, or a property with multiple units or floors, house hacking becomes more lucrative: you can live on one floor and rent out the others either long-term or as short-term stays. Tip: always have separate electricity and water metres, if possible, this makes bill-splitting simpler. You could add a separate entrance or a basic kitchenette to increase your rental value. This model is particularly effective in suburban or peri-urban areas.
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Basement or rooftop conversions
Most houses have unused basements or rooftops that are often overlooked goldmines, so converting a basement into a studio apartment or turning your terrace into a cosy rental unit can generate consistent passive income. Tip: invest in waterproofing, proper ventilation, and insulation, especially for Indian climates, and directly impact your ability to charge higher rents.
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Paying guests (PG) and co-living models
The PG format has long existed in Indian cities, especially in colleges and IT parks. There is a co-living expansion trend in the country, so this model is also a scalable business. Start small, maybe 2–3 guests maximum, before going full-scale. Use a basic tenancy agreement and keep emergency contacts and ID proofs handy.
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Airbnb and short-term rentals
If your city sees a lot of tourist traction, listing a spare room or full floor on Airbnb, MakeMyTrip or a short-term rental can bring in higher-than-average rent. Simply invest in nice bedding, Wi-Fi, and a clean bathroom; these three things account for most of your reviews and bookings. You can block dates for personal use and rent it out only when it suits you.
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Commercial + residential (Mixed-use spaces)
If you live in older colonies or corner plots in Tier-2 towns, you are likely to find homes with attached shops or clinics on the ground floor. So, if allowed by zoning laws, you can run or rent out this space as a salon, café, tuition centre, or office, while living above or behind. Please ensure that the zoning and building bylaws are favourable; violating them could invite fines or even demolition notices. See more: How to differentiate between residential and commercial properties?
Financial perks of house hacking
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Reducing or eliminating your housing costs
It can help eliminate the monthly housing expenses by using rental income to cover EMIs, maintenance charges, or just be a passive income source. So, renting out a portion of a home for Rs. 15,000/month could notably reduce one’s financial burden.
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Accelerated wealth building
Rental income not only covers your costs but also contributes to your overall wealth. That income can be reinvested, saved, or used to pay down your mortgage faster, as over time, the property appreciates in value, building equity while you live in it.
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Low effort, more returns
Unlike a full-time job, house hacking generates recurring income with minimal day-to-day effort once tenants are in place. You remain in control of your asset while it earns for you.
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Tax exemptions
As we will discuss later in this article, there are valuable tax reductions that house hacking offers homeowners can benefit from.
Potential demerits and risks
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Tenant troubles
Well, finding and managing tenants can be difficult; there can be issues such as late payments, damage to property, or interpersonal conflicts, which can add up to disrupt your finances and personal peace.
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Zoning law limitations
You must first check the zoning laws, as many Indian cities have restrictions that prohibit certain types of rentals or modifications in property. So, renting out portions of your home without checking local regulations can lead to fines or unwanted legal repercussions.
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Privacy and lifestyle compromises
Don’t underestimate the loss of privacy and increased noise or stress, these are particularly challenging for families or individuals not used to shared living spaces with tenants and can cause conflicts.
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Unexpected maintenance costs
With smaller spaces comes the increased maintenance on shared utilities and wear-and-tear, so this needs to be factored into the budget to avoid shocks in unexpected repairs and upkeep.
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Regulatory changes and policy risks
To stay legally compliant, you must stay informed about the rental laws and tax codes and consult a property lawyer or a CA to help manage long-term risks.
Tax benefits and exemptions in India
Rental income in India is taxed under the head “Income from House Property.” The gross annual value (GAV) is adjusted with allowable deductions to arrive at what is called the “taxable income”.
Self-occupied vs let-out property: Key differences
| Criteria | Self-occupied property | Let-out property |
| Taxable income | Usually nil | Taxed as per the income slab |
| Interest deduction limit | Rs. 2 lakh/year (Sec 24b) | No limit on interest (net loss capped at Rs. 2 lakh) |
| Standard deduction | Not applicable | 30% of Net Annual Value (NAV) |
Section 24(b): Home loan interest deduction explained
Section 24(b) is the section that allows a deduction of up to Rs. 2 lakh per annum on interest paid for a home loan on a self-occupied property. There is no upper cap on interest deduction for let-out properties, though the loss from house property is capped at Rs. 2 lakh in a year, to be clear.
Standard deduction on rental income
Homeowners can get a flat 30% deduction on the Net Annual Value (GAV – Municipal Taxes) of their let-out property for repairs and maintenance; this is regardless of the actual expenses.
Depreciation on let-out property
While depreciation is not considered when about a residential property, if one treats their rental space as a business (Airbnb or commercial let-out), depreciation may apply to the structure under Section 32. This may not include the land.
Municipal taxes and their deductions
Municipal property taxes paid during the year are deductible from the Gross Rental Value (GRV) when computing the Net Annual Value (NAV).
HRA (house rent allowance) vs house hacking
Please note, HRA is not applicable if one owns a house, but house hacking can offer benefits in asset appreciation and rental yield.
Sample calculation: Taxable rental income with exemptions
Let’s assume:
- GAV (Rent received): Rs. 2,40,000/year (Rs. 20,000/month)
- Municipal tax paid: Rs. 10,000
- Home loan interest: Rs. 1,80,000
Calculation:
- Net Annual Value (NAV) = Rs. 2,40,000 – Rs. 10,000 = Rs. 2,30,000
- Less: Standard Deduction (30%) = Rs. 69,000
- Less: Interest on Home Loan = Rs. 1,80,000
- Taxable Income = Rs. 2,30,000 – Rs. 69,000 – Rs. 1,80,000 = (-) Rs. 19,000 (Carry forward loss)
House hacking tax breakdown in India
| Component | Amount (INR) | Explanation |
| Gross Annual Value (GAV) | 2,40,000 | Annual rent from tenants |
| Less: Municipal tax paid | 10,000 | Deductible |
| Net Annual Value (NAV) | 2,30,000 | GAV – Municipal Taxes |
| Less: Standard deduction | 69,000 | 30% of NAV |
| Less: Interest on loan | 1,80,000 | Allowed under Section 24(b) |
| Taxable income | (-)19,000 | Loss can be carried forward |
Legal and regulatory framework
Housing society rules and permissions
You must ensure that your housing society’s bylaws are favourable for renting out. This is because many societies require NOC or approval for short-term rentals or paying guests before renting out.
Municipal regulations and zoning laws
There are some areas in cities like Mumbai or Bengaluru that have restrictions on commercial or short-stay usage of residential property, so you must ensure that it is permissible.
GST and Airbnb/Short-stay rentals
In case the rental income of your property exceeds Rs. 20 lakh/year (Rs. 10 lakh in some states), GST registration is required, which mostly applies to Airbnb or guesthouse-style operations.
Rental agreements and tenant registration
You must ensure that the terms and conditions in the formal rent agreement are clear about everything, including rent, security deposit, notice period, and maintenance responsibilities; having done that, you can register it with your local sub-registrar office for legal validity.
RERA compliance for landlords
Though in general conception, RERA applies to builders and developers. However, landlords running multiple units or renting out under a business model (like co-living) may be scrutinised under RERA, so always consult a legal advisor if operating at scale.
Common mistakes to avoid in house hacking
Here is a list of things that you must avoid to help you make a successful house hacking situation for yourself:
- Skipping legal permissions: Failing to get approvals from housing societies or local authorities can lead to fines or eviction, as already mentioned above.
- Underestimating expenses and vacancies: Always account for repairs, tenant downtime, and surprise costs.
- Over-leveraging with home loans: Avoid stretching your EMIs beyond your rental income safety net; you must leave room for market dips.
- Poor tenant screening: One mistake many make is ignoring background checks, which can invite unreliable or problematic tenants.
- Weak rental agreements: As mentioned above, your rental agreements should be clear and detailed (include everything in writing: duration, rules, deposit terms and more) because vague or verbal deals often backfire.
- Not declaring rental income: Hiding your passive income earned from rentals can lead to penalties, back taxes, or audits. You must declare every bit of it.
Setting up your house hack
Creating a successful house hack requires more than just buying property. It’s about building a living arrangement that’s functional, legal, tenant-friendly, and profitable.
Design for privacy and functionality
Ideally, the best house hacks have clear boundaries between the homeowner and the tenant in a way that prioritises both privacy and functionality to reduce conflicts. Ensure that there are separate entrances, soundproofing of shared spaces, walls and floors, security locks or partitions, separate kitchenettes and restrooms, if possible.
Rental agreements: Must-have clauses
Your rental agreement is your legal safety net. There is more paperwork essential, and here is a list of must-have clauses that you shouldn’t skip:
- Rent amount and due date
- Security deposit terms
- Duration and notice period
- Maintenance responsibility
- Visitor and guest policy
- Subletting restrictions
- Termination clauses
You must also register the agreement if it exceeds 11 months.
House rules and boundaries for tenants
Set expectations early so there is a reduced chance of friction later. Tip: Try to be accommodating and welcoming to them, but hold your ground on what is important to you. So if loud music after 10 PM, or smoking in common areas, is a problem to you, state it. Inform them of details like shared utility usage terms, garbage disposal etiquette that you’d like them to follow, guest visit limits, etc.
Furnishing and amenities
The truth of rental world is that if you wish to charge a premium, you must add the basic amenities that matter to tenants like Wi-Fi, bed and mattress, curtains and lighting, RO water system, washing machine and fridge (shared or private) that will make your space ready to live, and hence would help you hike the prices. You could also add a working desk, inverter, access to a kitchen or an induction stove to add more value..
Pricing strategy: Long-term vs short-term
Long-term rentals (6–12 months): Stable income, less turnover, lower maintenance
Short-term or PG/Co-living: Higher income potential, higher vacancy risk, greater management needs
Use platforms Housing.com to experiment and study local demand.
Managing tenants and property
Owning a house hack means becoming a mini property manager; below is a list of things you must keep in mind:
Screening and background checks
Never skip this step, even if the tenant “seems nice.” Check their Aadhaar/passport/ID and employment or college proof. If applicable, also ask for references from previous landlords and police verification (essential in metro cities).
Maintenance and repairs: Who pays what?
The general rule of thumb is that the landlord repairs and maintains the structural repairs, electricals, plumbing, appliances (if included), and the tenant is responsible for day-to-day wear and tear, lightbulbs, cleaning, etc. These can be modified based on the agreement.
Conflict resolution techniques
Disagreements can arise. How you handle them matters; here are some tips:
- Stay calm and listen first
- Refer back to the agreement
- Offer mediation or written clarification
- If needed, involve a neutral third party or lawyer
Housing.com POV
So far, it is clear that house hacking is more than just a side hustle. It’s a way to live smarter, a way to reduce your financial stress, and gradually build wealth around this. In our country, where metro cities are overpopulated and have a subsequent land crisis, house hacking taps into a cultural tradition of shared spaces while offering a modern, strategic approach to real estate. With the right planning, legal awareness, and design, house hacking can make your home your greatest investment while living in it.
FAQs
Can I legally rent part of my house in India?
Yes, as long as you follow housing society rules, local municipal regulations, and register your rental agreement where required.
Do I need to pay tax on rental income from house hacking?
Yes, rental income is taxable, but it offers several exemptions like Section 24(b) and a standard 30% deduction.
What’s the difference between house hacking and subletting?
House hacking involves living in your property while renting a portion. Subletting is when a tenant rents out to another person, often without the landlord's permission.
Is house hacking possible in rented apartments?
Technically no! Unless you have explicit landlord permission, you can not. Otherwise, it could be considered a lease violation.
How much money can I make from house hacking?
It depends on your city, location, property type, and setup. PGs and co-living models in metros can bring ₹10,000–₹50,000+ per month.
Can I do house hacking in rural or tier-2 cities?
Yes! It may not be PG or co-living, but renting extra rooms to students, retirees, or medical tourists works well in cities like Indore, Coimbatore, and Dehradun.
Are there risks to house hacking?
Yes—tenant conflicts, maintenance, regulatory issues, and privacy challenges. But with legal prep and good screening, the risks are manageable.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |