Last reviewed: 25 September 2026. Own a house, or pay a home loan? How your property is taxed - and what you can deduct - depends on whether it is self-occupied or let out, and on which tax regime you choose. This guide explains house property income, the home loan interest and principal benefits, and the important limits for AY 2026-27 in plain terms. The figures apply to FY 2025-26 income, which is governed by the Income-tax Act, 1961, so the 1961 section numbers are used below; the new section numbers for tax year 2026-27 onward are set out in a separate box.
Quick summary
Self-occupied vs let-out
| Item | Self-occupied | Let-out (rented) |
|---|---|---|
| Annual value | Nil (up to two houses) | Rent received (less municipal taxes) |
| Standard deduction | Not applicable | 30% of net annual value |
| Home loan interest (old regime) | Up to Rs 2 lakh (combined for both houses) | Full interest |
| Home loan interest (new regime) | Not allowed | Allowed, but loss not set off against other income |
The two home loan benefits (old regime)
- Interest - under Section 24(b), up to Rs 2 lakh a year for a self-occupied house, or the full interest for a let-out house. The cap falls to Rs 30,000 if the loan was not taken for purchase or construction (for example, a repair loan), or if construction is not completed within five years from the end of the financial year in which the loan was taken.
- Principal - the principal repaid qualifies under Section 80C, within the overall Rs 1.5 lakh limit.
Worked example 1: self-occupied flat, old vs new regime
A salaried buyer earns Rs 18 lakh, pays Rs 2.4 lakh interest and Rs 1.2 lakh principal on the home loan for the flat she lives in, and puts Rs 30,000 into PPF.
| Item | Old regime | New regime |
|---|---|---|
| Salary less standard deduction | Rs 17,50,000 | Rs 17,25,000 |
| Home loan interest (Section 24(b)) | Rs 2,00,000 (capped; Rs 40,000 lost) | Nil |
| 80C (principal + PPF) | Rs 1,50,000 | Nil |
| Taxable income | Rs 14,00,000 | Rs 17,25,000 |
| Tax including 4% cess | Rs 2,41,800 | Rs 1,50,800 |
Even with Rs 3.5 lakh of deductions (interest at the Rs 2 lakh cap plus the full 80C limit), the new regime is cheaper at this income. The old regime tends to win only where large HRA or other deductions sit on top of the home loan, so run both computations every year.
Worked example 2: let-out flat with a loss
A second flat is rented for Rs 3,00,000 a year; municipal tax paid is Rs 20,000 and home-loan interest is Rs 4,50,000.
| Step | Amount |
|---|---|
| Net annual value (Rs 3,00,000 - Rs 20,000) | Rs 2,80,000 |
| Less 30% standard deduction | Rs 84,000 |
| Less interest | Rs 4,50,000 |
| Loss from house property | Rs 2,54,000 |
| Old regime: set off against salary this year | Rs 2,00,000 |
| Old regime: carried forward (8 years, against house property income only) | Rs 54,000 |
| New regime: set off against salary | Nil |
Joint loans and pre-construction interest
| Situation | How the deduction works (old regime) |
|---|---|
| Husband and wife co-own and co-borrow, self-occupied, interest Rs 5 lakh | Each claims up to Rs 2 lakh interest (Rs 4 lakh together) and principal within their own Rs 1.5 lakh 80C limit, provided each pays their share of the EMI |
| Co-owner who is not a co-borrower | No interest deduction, because no loan liability |
| Co-borrower who is not a co-owner | No deduction; the interest must relate to your own property |
Interest paid before construction is completed is not lost. The total pre-construction interest (up to the end of the financial year before completion) is claimed in five equal instalments starting from the year of completion. For example, a buyer who took a loan in 2022 and got possession in June 2025 with Rs 6 lakh of pre-construction interest claims Rs 1.2 lakh a year from FY 2025-26 to FY 2029-30, in addition to the current year's interest. For a self-occupied house, both together still sit within the Rs 2 lakh cap.
House property loss and set-off
If interest exceeds the rent (or on a self-occupied house), you get a loss from house property, which can be set off against your other income up to Rs 2 lakh a year; anything beyond that is carried forward for up to 8 years. Under the new regime, a let-out house loss cannot be set off against other income at all.
NRI landlords
If you live abroad and let out a flat in India, the tenant must deduct TDS on the rent under Section 195 for payments up to 31 March 2026 and under section 393(2) (old 195) from 1 April 2026. The rate for a non-resident is much higher than for a resident, so many NRI landlords apply for a lower-deduction certificate. Rent should be received in an NRO account. You still claim the 30% standard deduction and the Section 24(b) interest in your Indian return, which is often how the excess TDS comes back as a refund. Our CA services for NRIs cover the certificate, the return and repatriation; see also the NRI tax hub.
From tax year 2026-27: new section numbers
| Benefit | 1961 Act (FY 2025-26) | Income-tax Act, 2025 (from 1 April 2026) |
|---|---|---|
| Home-loan interest deduction | Section 24(b) | Section 22(1)(b) |
| Rs 2 lakh cap on self-occupied interest | Proviso to Section 24(b) | Section 22(2)(a) |
| Principal repayment | Section 80C | Section 123 |
| New tax regime | Section 115BAC | Section 202 |
Frequently asked questions
How is home loan interest deductible?
For a self-occupied house, interest on the home loan is deductible up to Rs 2 lakh a year under Section 24(b) in the old regime. For a let-out (rented) house, the full interest is deductible against the rent.
Can I claim home loan interest in the new tax regime?
For a self-occupied house, no - interest is not deductible under the new regime. For a let-out house, the interest is deductible, but a resulting loss cannot be set off against your other income.
What is the standard deduction on rental income?
For a let-out property, you get a flat 30% standard deduction on the net annual value (rent minus municipal taxes), on top of the home loan interest deduction.
Can I claim the principal repayment of my home loan?
Yes, in the old regime - the principal portion qualifies under Section 80C, within the overall Rs 1.5 lakh limit. It is not available in the new regime.
How much house property loss can I set off?
A loss from house property can be set off against other income up to Rs 2 lakh in a year; the balance is carried forward for up to 8 years to set off against future house property income.
Is rent from my own house taxable?
A self-occupied house has a nil annual value, so there is no rental income to tax - you only claim the interest deduction. Rent from a let-out house is taxable after the standard deduction and interest.
Can I treat two houses as self-occupied?
Yes. From FY 2024-25 you can treat up to two houses as self-occupied with nil annual value, without having to show that you live away from one for work. The Rs 2 lakh interest cap is a combined limit for both houses, not Rs 2 lakh each.
If my spouse and I take a joint home loan, do we each get Rs 2 lakh?
Yes, if each of you is both a co-owner of the house and a co-borrower on the loan, and each actually pays your share of the EMI. Each co-owner can claim interest up to Rs 2 lakh on a self-occupied house and principal within their own Rs 1.5 lakh 80C limit, under the old regime.
I am an NRI renting out my flat in India. What TDS applies?
The tenant must deduct tax on rent paid to a non-resident under Section 195 for payments up to 31 March 2026, and under section 393(2) of the Income-tax Act, 2025 from 1 April 2026, usually at a much higher rate than for residents unless you obtain a lower-deduction certificate. You then file an Indian return, claim the 30% standard deduction and home-loan interest, and take credit for the TDS.
We compute your house property income, apply the right regime and help you claim the deductions available to you.
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