Head #2 of 5
Income from House Property & Home Loan Tax Benefits
Own a home? This head covers it — whether you live in it, rent it out, or are paying an EMI. Rules are mostly unchanged; only the section numbers moved.
How Annual Value Is Computed
- Self-occupied (you live in it): Annual Value = NIL. No income from the house — only the loan-interest deduction (up to ₹2L, old regime only)
- Let-out (rented): Annual Value = the actual rent (or reasonable expected rent, whichever is higher)
- 30% standard deduction: a flat 30% of rent is knocked off for maintenance — no bills needed
- Home-loan interest: fully deductible for let-out property*; for self-occupied property only in the old regime, capped at ₹2L
- Set-off limit: a house-property loss of up to ₹2L can offset other income (old regime); the rest carries forward for 8 years
Example — A rented-out flat — Meena's working
Meena lets out her flat at ₹22,000/month. Her home-loan interest is ₹2,80,000/year; municipal tax paid ₹6,000.
• Annual rent = ₹2,64,000 − municipal tax ₹6,000 = ₹2,58,000 (NAV)
• − 30% standard deduction ₹77,400 → ₹1,80,600
• − Home-loan interest ₹2,80,000 → house-property loss = ₹99,400
• Within the ₹2L limit, so in the old regime it offsets her salary — taxable income drops by ₹99,400!
*In the new regime, interest on a let-out property remains deductible, but a house-property loss cannot be set off against other heads there.
• Annual rent = ₹2,64,000 − municipal tax ₹6,000 = ₹2,58,000 (NAV)
• − 30% standard deduction ₹77,400 → ₹1,80,600
• − Home-loan interest ₹2,80,000 → house-property loss = ₹99,400
• Within the ₹2L limit, so in the old regime it offsets her salary — taxable income drops by ₹99,400!
*In the new regime, interest on a let-out property remains deductible, but a house-property loss cannot be set off against other heads there.
Example — Living in your own home with a running loan
Deepak lives in his self-occupied flat: interest ₹1,90,000/year, principal ₹1,20,000/year.
• Old regime: interest ₹1.9L (within the ₹2L cap) + principal ₹1.2L under Sec 123 (80C) → ₹3.1L of total deductions!
• New regime: self-occupied interest deduction NOT available , principal under Sec 123 also not available .
Big home loans are one of the few areas where the old regime fights back — compare carefully.
• Old regime: interest ₹1.9L (within the ₹2L cap) + principal ₹1.2L under Sec 123 (80C) → ₹3.1L of total deductions!
• New regime: self-occupied interest deduction NOT available , principal under Sec 123 also not available .
Big home loans are one of the few areas where the old regime fights back — compare carefully.
Pre-Construction Interest
Interest paid during the construction/purchase period is allowed in 5 equal annual instalments starting from the year of possession (within the overall ₹2L cap for self-occupied homes).
Example — Possession came late
Farhan borrowed in 2022 and got possession in March 2026. Interest paid 2022-26: ₹3,00,000 → he now claims ₹60,000/year for 5 years on top of current-year interest (fully for let-out; within the ₹2L cap if self-occupied).
- You may treat up to two properties as self-occupied — a third is 'deemed let-out'
- Co-owned property: each co-owner computes income and interest in proportion to their share
- Recovered unrealised rent is taxable in the year of receipt
- The new Act keeps all these provisions — just renumbered and cleaned up
Our take ✍️
The two-house nil rule is the biggest QUIET win of recent budgets — second-home owners just stopped paying tax on imaginary rent. If you own two houses, revisit your old-regime-vs-new math this year; the change quietly moved the breakeven in old's favour.
💡 Pro tip: co-owners EACH get the ₹2L cap
Joint home loan with your spouse? The ₹2,00,000 self-occupied interest cap applies per co-owner (in ownership share) — a 50:50 couple effectively shields ₹4L of interest. Same split applies to let-out interest (no cap anyway) and rental income. But the split must mirror ACTUAL ownership + ACTUAL EMI payment — a 99:1 deed with 50:50 claims won't survive scrutiny. Deed, loan, and bank statements should tell one consistent story.
⚖️ Legal footing: 22 + 23 + 24(a)/24(b)
House property in four sections: Sec 22 (charging), Sec 23 (annual value — now with TWO self-occupied nils post-Finance-Act-2025), Sec 24(a) (flat 30% standard deduction, no bills), Sec 24(b) (interest — full for let-out, ₹2L total cap for self-occupied, old regime). Learn this chain and the whole head collapses into one line: (23 value − municipal) − 24(a) − 24(b).
Second house? no-deemed-rent rule →
By TaxSetu Editorial Team · Last reviewed: 7 October 2026
Based on the Income-tax Act 2025, Income Tax Rules 2026 and CBDT notifications; sections per the Income-tax Act 1961 (as amended) with 2025-Act mappings where notified · Verify on the official portal: incometax.gov.in
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