Under Section 24 of the Income Tax Act, you can deduct up to ₹2 lakh per financial year of home loan interest on a self-occupied property, and the full interest paid on a let-out property with no ceiling. The Section 24 home loan interest deduction on a self-occupied home is available only under the old tax regime; the new regime, which has been the default since Assessment Year 2024-25, blocks it entirely.1Income Tax Department. FAQs on New Tax vs Old Tax Regime If you carry a home loan and haven’t consciously chosen a regime, you may already be losing the deduction without knowing it.
Where the Interest Deduction Sits in the Calculation
Section 24(b) is the second of two deductions applied to house property income. First comes the Net Annual Value: for a rented property, the higher of actual rent, municipal valuation, or fair market rent, minus any municipal taxes you paid. For a self-occupied home, the annual value is zero.2Income Tax Department India. House Property
Section 24(a) then gives you an automatic flat 30% deduction from that Net Annual Value to cover repairs, maintenance, and insurance. You get this whether you actually spent anything on upkeep or not, and no receipts are needed.3Indian Kanoon. Section 24 in The Income Tax Act, 1961 For a self-occupied home, 30% of zero is zero, so the standard deduction has no effect.
Section 24(b) then lets you subtract interest paid on any loan taken to buy, build, repair, or renovate the property. That final subtraction produces either your taxable house property income or a loss.
How Much Interest You Can Deduct on a Self-Occupied Home
The full ₹2 lakh cap applies only when three conditions are all met:
- The loan was taken on or after April 1, 1999.
- The loan was used to buy or build the home, not to repair or renovate it.
- Construction was completed within five years from the end of the financial year in which the loan was taken.
If any one of these fails, the limit collapses to ₹30,000 per year.3Indian Kanoon. Section 24 in The Income Tax Act, 1961 That means loans taken before April 1999, loans used for repair or renewal even if taken recently, and purchase or construction loans where the building ran past the five-year window all fall to the lower cap.
The ceiling is per taxpayer, not per property. Co-owners who are also co-borrowers can each claim up to their applicable limit, based on ownership share and their share of the interest actually paid.
Let-Out and Deemed Let-Out Property
For a property you rent out, there is no cap on the interest you can deduct against the rental income itself. Every rupee of interest paid comes off. For landlords with large mortgage balances, the deduction can wipe out the rental income and produce a loss under the house property head.
Since Budget 2019 (effective Assessment Year 2020-21), you can designate up to two properties as self-occupied. Any additional homes are treated as “deemed let-out”: the tax department assigns a notional rental value and taxes you on it even though no rent is coming in. The unlimited interest deduction that applies to let-out properties applies to these deemed let-out homes as well.
Old Regime vs New Regime: The Trap Most Borrowers Fall Into
Section 115BAC’s new tax regime became the default starting Assessment Year 2024-25. If you don’t actively opt for the old regime, you’re on the new one, and the interest deduction on a self-occupied property is completely unavailable.1Income Tax Department. FAQs on New Tax vs Old Tax Regime Not reduced. Gone.
The unlimited interest deduction on let-out property survives under both regimes. The self-occupied ₹2 lakh benefit does not.
Losses behave differently across the regimes too. Under the old regime, if interest exceeds rental income (or if you claim interest on a self-occupied home with no rent at all), up to ₹2 lakh of the resulting loss can be set off against salary, business income, or other income heads in the same year. Under the new regime, house property losses can only be set off against other house property income, never against salary or other heads.1Income Tax Department. FAQs on New Tax vs Old Tax Regime
The new regime does offer lower slab rates and a higher basic exemption. But losing the ₹2 lakh interest deduction and the cross-head loss offset can easily wipe out those rate savings, especially in the early years of a home loan when interest is at its highest. Run the numbers both ways before letting the default decide for you.
Pre-Construction Interest
Interest paid while a home is still being built gets separate treatment. The pre-construction period runs from the date you took the loan through March 31 of the year immediately before construction finishes, or the date the loan is fully repaid, whichever comes first. None of this interest is deductible in the year you actually paid it.
Instead, add up all interest paid during the pre-construction window and claim it in five equal annual installments, starting from the financial year construction is completed or possession is taken. Each installment stacks on top of that year’s current interest. For a self-occupied home under the old regime, the combined amount still cannot exceed ₹2 lakh in any year.
The five-year completion deadline bites here as well. If construction runs past five years from the end of the financial year the loan was taken, the annual ceiling drops from ₹2 lakh to ₹30,000, and that lower cap covers both current interest and any pre-construction installment for that year.
Setting Off and Carrying Forward Losses
Where interest exceeds rental income (after the 30% standard deduction), the shortfall is a loss under the house property head. Under the old regime, up to ₹2 lakh can be set off in the same year against income from any other source: salary, business profits, capital gains, or other income.4ClearTax. Set Off and Carry Forward of Losses
Anything beyond the ₹2 lakh set-off limit carries forward for up to eight assessment years, but the carried-forward portion can only be adjusted against future house property income, not other heads. File your return by the due date, or you forfeit the carry-forward entirely.4ClearTax. Set Off and Carry Forward of Losses
Under the new regime, the ₹2 lakh cross-head set-off is not available at all. House property losses offset only house property income in the same year, and the same eight-year carry-forward applies to whatever remains.
Documents to Keep on File
The central document is the interest certificate your lender issues each year. It has to break out principal and interest separately and show the loan sanction date and total loan amount. Tax officials use it to confirm that only the interest portion is being claimed under Section 24(b).
Keep proof of the date construction was completed or possession was taken. That date sets the clock for pre-construction installments and determines whether you cleared the five-year completion deadline. A local authority completion certificate or a registered possession letter from the builder does the job.
When filling in the house property schedule of your Income Tax Return, enter current-year interest and any pre-construction installment as separate figures. Co-owners report only their share. Mismatches between what you enter and what the interest certificate shows are a common trigger for notices from the Centralized Processing Centre, so check the numbers against the certificate before submitting.