Taxation & Finance
Lease Rental Discounting (LRD): How Your Tenant’s Rent Pays Off Your Property Loan
Learn how banks finance up to 65%–75% of a pre-leased commercial property at competitive interest rates backed by future corporate rental cashflows.
By VantageProp Research Desk · · 1 min read
Quick answer
- LRD loans carry lower interest rates (typically 8.60% to 9.40% p.a.) than standard commercial mortgage loans because the cashflow is backed by a verified corporate tenant.
- Rental inflows are routed into an Escrow Account, automatically servicing the monthly EMI while contractual 15% escalations create growing surplus cashflow.
- Interest paid on commercial property loans is 100% deductible against rental income under Section 24(b) of the Income Tax Act without the ₹2 Lakh cap applicable to self-occupied homes.
How Lease Rental Discounting (LRD) Works
Lease Rental Discounting is a specialized term loan offered by banks and NBFCs against the assured rental receipts of a pre-leased commercial property. Instead of evaluating only the borrower’s personal income, the bank evaluates the creditworthiness (covenant) of the MNC or corporate tenant and the balance lock-in / lease tenure.
Tax Efficiency under Section 24(a) & 24(b)
Under the Indian Income Tax Act (Income from House Property), commercial property owners enjoy two powerful deductions:
- Standard Deduction u/s 24(a): Flat 30% deduction on Net Annual Value (Rental Income minus Municipal Taxes) for repairs and collection, regardless of actual expenditure.
- Full Interest Deduction u/s 24(b): 100% of the interest paid on an LRD or commercial acquisition loan is deductible from taxable rental income.
- Escrow Structuring: As rent escalates by 15% every 3 years while your EMI remains fixed, your net positive cashflow expands significantly in Years 4–9.
Frequently asked questions
What is Lease Rental Discounting (LRD)?
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A term loan from a bank or NBFC against the assured rent of a pre-leased commercial property. The lender assesses the tenant's creditworthiness and remaining lease and lock-in, not just the borrower's income.
What is the interest rate on an LRD loan?
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Typically 8.60% to 9.40% per year, lower than standard commercial mortgages because the repayments are backed by a verified corporate tenant's rent.
Is interest on a commercial property loan tax deductible?
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Yes. Under Section 24(b), 100% of the interest is deductible against rental income, without the ₹2 lakh cap that applies to self-occupied homes. A flat 30% standard deduction also applies under Section 24(a).