Section 24(b): Home Loan Interest Deduction on Let-Out and Self-Occupied Property

Short answer: Section 24(b) of the Income-tax Act allows you to claim a deduction on the interest paid on your home loan. For a self-occupied property, the limit is ₹2,00,000 per year, but this is only available under the old tax regime. For a let-out property, there is no limit on the interest you can claim as a deduction, though the amount of loss you can set off against other income is capped at ₹2,00,000 annually.

What is Section 24(b) of the Income-tax Act?

This section allows a taxpayer to deduct the interest paid on a loan taken for the purpose of purchase, construction, repair, renewal, or reconstruction of a house property from their 'Income from House Property'. This deduction is one of the most significant tax-saving benefits for homeowners. It is calculated after determining the Net Annual Value (NAV) of your property. For a self-occupied property, the NAV is taken as nil, leading to a loss from house property which can be set off against other income like salary.

What is the maximum deduction under Section 24(b) for a self-occupied property (SOP)?

The maximum deduction is ₹2,00,000 per financial year, provided certain conditions are met. To claim the full ₹2 lakh deduction, the loan must have been taken on or after 1 April 1999 for the purchase or construction of the property. Additionally, the construction or acquisition must be completed within 5 years from the end of the financial year in which the loan was sanctioned. If these conditions are not met, or if the loan was taken for repairs, renewal, or reconstruction, the deduction is restricted to ₹30,000. This deduction is only available if you opt for the old tax regime.

Is there a limit on interest deduction for a let-out property (LOP)?

No, there is no upper limit on the amount of home loan interest you can claim as a deduction for a let-out property under Section 24(b). You can claim the entire interest paid during the year. However, there is a separate restriction on how much loss from the 'house property' head can be set off against other heads of income (like salary or business income) in the same year. This set-off is capped at ₹2,00,000. Any loss from house property that remains unadjusted can be carried forward for up to 8 subsequent assessment years to be set off only against future income from house property.

How is pre-construction interest treated under Section 24(b)?

Interest paid on a home loan before the financial year in which the property construction is completed is called pre-construction interest. You cannot claim this interest in the years it is paid. Instead, the total pre-construction interest is aggregated and can be claimed as a deduction in five equal annual instalments, starting from the year in which the construction is completed. This deduction is part of the overall limit of ₹2,00,000 for a self-occupied property. For a let-out property, it is deductible without any upper limit.

Can I claim Section 24(b) deduction under the new tax regime?

This depends on the type of property. The new tax regime, which is the default option for taxpayers from FY 2023-24 onwards, does not allow the deduction under Section 24(b) for a self-occupied property. However, if you have a let-out property, you can still claim the full interest paid as a deduction against your rental income, even under the new tax regime. The restriction on setting off house property loss against other income at ₹2,00,000 per year also applies under the new regime. You can find more details in our guide to the new vs. old tax regime.

How does Section 24(b) work for joint home loan borrowers?

If a property is jointly owned and the home loan is taken in joint names, each co-owner can claim a deduction under Section 24(b) individually. For a self-occupied property, each joint owner can claim a deduction up to ₹2,00,000 from their respective taxable income, provided they are also co-borrowers and have a defined share in the property. This allows a family to claim a higher total tax benefit. For example, two joint owners could potentially claim a total interest deduction of ₹4,00,000 on their self-occupied house under the old tax regime.

Feature	Self-Occupied Property (SOP)	Let-Out Property (LOP)
Gross Annual Value (GAV)	Nil	Rent received or Fair Market Rent, whichever is higher
Standard Deduction (30% of NAV)	Not Applicable (as NAV is Nil)	Yes, 30% of NAV is deductible
Interest Deduction u/s 24(b)	Max ₹2,00,000 (if conditions met) or ₹30,000	Actual interest paid, no upper limit
Availability in New Regime	No	Yes
Loss Set-off Limit	Capped at ₹2,00,000 against other income	Capped at ₹2,00,000 against other income
Carry Forward of Loss	Yes, for 8 assessment years	Yes, for 8 assessment years

Worked example

Ms. Anjali, a software engineer in Bengaluru, has a total salary of ₹20,00,000 for FY 2025-26. She owns two houses.

• House 1 (Bengaluru): Self-occupied. She paid total interest of ₹2,50,000 on its loan.
• House 2 (Mysuru): Let-out for a rent of ₹25,000 per month. She paid total interest of ₹3,80,000 on its loan and municipal taxes of ₹10,000.

Let's calculate her 'Income from House Property'.

Calculation for Let-Out Property (House 2):

1. Gross Annual Value (GAV): ₹25,000 x 12 = ₹3,00,000
2. Municipal Taxes Paid: ₹10,000
3. Net Annual Value (NAV): GAV - Municipal Taxes = ₹3,00,000 - ₹10,000 = ₹2,90,000
4. Standard Deduction (30% of NAV): 30% of ₹2,90,000 = ₹87,000
5. Interest on Loan (u/s 24b): ₹3,80,000
6. Income/Loss from LOP: NAV - Standard Deduction - Interest = ₹2,90,000 - ₹87,000 - ₹3,80,000 = (₹1,77,000) Loss

Scenario 1: Anjali opts for the New Tax Regime (Default)

• Deduction for interest on SOP (House 1) is not allowed.
• Loss from LOP (House 2) is calculated as (₹1,77,000).
• This entire loss of ₹1,77,000 can be set off against her salary income as it's within the ₹2,00,000 limit.
• Gross Salary: ₹20,00,000
• Standard Deduction (Salary): ₹75,000
• Loss from House Property set-off: (₹1,77,000)
• Taxable Income: ₹20,00,000 - ₹75,000 - ₹1,77,000 = ₹17,48,000

Scenario 2: Anjali opts for the Old Tax Regime

• Loss from SOP (House 1): Interest deduction is allowed up to ₹2,00,000. So, loss is (₹2,00,000).
• Loss from LOP (House 2): Calculated as (₹1,77,000).
• Total Loss from House Property: (₹2,00,000) + (₹1,77,000) = (₹3,77,000).
• Maximum Loss Set-off Allowed: The law allows setting off a maximum of (₹2,00,000) of house property loss against other income.
• Balance Loss to Carry Forward: ₹3,77,000 - ₹2,00,000 = ₹1,77,000 (This can be carried forward for 8 years).
• Gross Salary: ₹20,00,000
• Standard Deduction (Salary): ₹50,000
• Loss from House Property set-off: (₹2,00,000)
• Other deductions (e.g., 80C): Assuming she claims ₹1,50,000 under Section 80C.
• Taxable Income: ₹20,00,000 - ₹50,000 - ₹2,00,000 - ₹1,50,000 = ₹16,00,000

Anjali should use an income tax calculator to see which regime results in lower tax liability.

Common mistakes

1. Claiming SOP interest in the New Regime: The most frequent error is claiming the interest deduction for a self-occupied property after opting for the new tax regime, which is not permitted.
2. Ignoring the 5-year Completion Rule: Forgetting that the property must be acquired or constructed within 5 years of taking the loan to be eligible for the enhanced ₹2,00,000 deduction limit on an SOP.
3. Incorrect Pre-Construction Interest Calculation: Claiming the entire pre-construction interest in one year instead of in five equal instalments.
4. Exceeding the Loss Set-off Limit: Setting off more than ₹2,00,000 of loss from house property against other income heads in a single year.
5. Confusing Section 80C and Section 24(b): The principal repayment on a home loan is deductible under Section 80C (up to ₹1.5 lakh limit, old regime only), while interest is deductible under Section 24(b).

How SP & SC helps

Navigating the nuances of house property income, especially with multiple properties and different tax regimes, can be complex. SP & SC Legal and Taxation Services provides expert assistance with tax planning and income tax filing. We help you accurately calculate your income from house property, maximise your deductions under Section 24(b), choose the optimal tax regime, and ensure your ITR is filed correctly. We also represent clients in case of any queries or notices from the Income Tax Department regarding home loan deductions.

Frequently asked questions

H3: Can I claim deduction for two self-occupied properties?

You can own two properties and declare both as self-occupied. For tax purposes, the annual value of both SOPs will be taken as Nil. The aggregate interest deduction under Section 24(b) for both properties combined will be limited to ₹2,00,000 under the old tax regime. This benefit is not available under the new tax regime.

H3: What documents do I need to claim this deduction?

The primary document is the interest certificate provided by your bank or lending institution. This certificate details the split between principal and interest repayment for the financial year. You should keep this certificate and the proof of municipal tax payment safe, though you don't need to upload them while filing your ITR unless specifically asked.

H3: Can I claim deduction if I live in a different city for work?

Yes. If you own a property in one city but live in another city for employment or business in a rented accommodation, your own property can be treated as self-occupied (provided it is not let out). You can claim interest deduction under Section 24(b) (in old regime) and also claim HRA exemption. More details can be found in our guide on tax on rental income.

H3: What happens to the unabsorbed loss from house property?

Any loss from house property that cannot be set off against other income in the current year (due to the ₹2,00,000 cap) can be carried forward for up to 8 subsequent assessment years. This carried-forward loss can only be set off against 'Income from House Property' in future years.

H3: Is interest on a loan for home renovation deductible?

Yes, interest on a loan taken for repairs, renewal, or reconstruction of a house property is deductible under Section 24(b). However, for a self-occupied property, the deduction for such a loan is capped at ₹30,000 per year (this limit is inclusive of the overall ₹2,00,000 limit).

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