Income from House Property: Home Loan Interest Rules FY 2025-26

The house property head taxes ownership of buildings and land, and home loan interest is the biggest lever within it. Under the old regime a self-occupied home attracts interest deduction up to ₹2 lakh, while let-out properties follow a different, loss-capped path. This guide covers the computation, the deemed let-out rules and the closed 80EE and 80EEA windows.

How Income from House Property Is Computed

For a let-out property, start with the gross annual value, which is the higher of actual rent or municipal valuation. Subtract municipal taxes actually paid by you, then claim a flat 30% standard deduction on the balance. Home loan interest under section 24(b) is then deductible in full for let-out property, which can make the net income negative.

Self-Occupied Property: The ₹2 Lakh Interest Cap

A self-occupied house produces nil rental income, yet the old regime still allows interest deduction up to ₹2,00,000 per year under section 24(b), provided the loan was taken for purchase or construction. The benefit exists only in the old regime for FY 2025-26, since the new regime disallows self-occupied interest entirely. Let-out property interest, by contrast, continues to work in both regimes.

Let-Out Property: Full Interest, Capped Loss

Interest on a let-out property has no separate rupee cap. However, the net loss from house property that can be set off against salary or other heads is capped at ₹2,00,000 per year. Any unabsorbed loss carries forward for up to 8 assessment years, to be set off against house property income. Municipal taxes paid by the owner are deducted before the standard 30% and interest.

Deemed Let-Out: Two or More Houses

Owning more than one house forces a classification decision. Under the old regime, up to two houses can be treated as self-occupied, and any remaining property is deemed let out at notional rent even if nobody pays you anything. Deemed let-out properties follow the let-out computation, including the 30% standard deduction and full interest, with actual municipal tax payments still counting.

Pre-Construction Interest

Interest paid on a housing loan taken while the property is under construction is not wasted. The aggregate pre-construction interest is deducted in five equal annual instalments, starting from the year the construction is completed. Each instalment counts toward the applicable ₹2 lakh self-occupied cap or the let-out computation of that year.

Co-Ownership and Shared Claims

When a property is owned jointly, each co-owner claims interest and other deductions in the ratio of ownership. If both co-owners also service the EMIs, both can separately claim their share of the ₹2 lakh self-occupied cap, effectively doubling the household deduction. Repayment records should mirror the claimed ownership shares to survive scrutiny.

80EE and 80EEA: Closed Windows

Two extra deduction windows once sweetened first-home purchases, and both are now closed to new borrowers. Section 80EE historically allowed an additional ₹50,000 interest deduction for first-time buyers. Section 80EEA then offered ₹1,50,000 for affordable housing loans sanctioned up to 31 March 2022. Loans sanctioned after that date get no benefit under either section, so only the section 24(b) limits above apply today.

Key Takeaways

• Self-occupied home loan interest is deductible up to ₹2 lakh under section 24(b), old regime only for FY 2025-26.
• Let-out property allows full interest, but the set-off of house property loss against other heads is capped at ₹2 lakh a year with an 8-year carry-forward.
• Pre-construction interest is released in five equal yearly instalments after completion.
• Joint owners split interest and deductions in their ownership ratio.
• 80EE (₹50,000) and 80EEA (₹1.5 lakh) are closed to new sanctions after 31 March 2022.

Frequently Asked Questions

Can I claim ₹2 lakh interest for a self-occupied house in the new regime?

No. For FY 2025-26 the new regime under section 115BAC does not allow the self-occupied interest deduction. It remains available in the old regime, while let-out property interest continues in both.

What happens to the loss that exceeds ₹2 lakh?

The unabsorbed house property loss carries forward for up to 8 assessment years. It can then be set off only against house property income, not against salary. Renting the property out in later years revives the set-off.

How is pre-construction interest claimed?

Aggregate the interest paid from loan disbursement until construction ends, then deduct one-fifth of it each year for five years beginning with the completion year. Each instalment counts within the ₹2 lakh self-occupied cap or the let-out computation, as applicable.

My spouse and I jointly own the flat. Who claims the interest?

Each co-owner claims a share matching ownership and EMI payment. Two working co-owners can each use the ₹2 lakh self-occupied limit on their share. Keep the ownership deed and repayment records consistent with the claim.

Is the 80EEA benefit still available?

No. Section 80EEA covered affordable housing loans sanctioned up to 31 March 2022, and the window has closed. New buyers claim under section 24(b) only, up to ₹2 lakh for self-occupied property in the old regime.

For ownership splits, deemed let-out choices or a notice on property income, our income tax consultant services can take over the computation and filing. Compare regimes first with the old vs new tax regime tool.

Disclaimer: Tax laws change frequently. Verify current rates and deadlines on the official portals (incometax.gov.in, gst.gov.in) or consult a qualified professional before acting.