Whether you own one house or several, the income tax treatment of house property income has its own set of rules that work quite differently from salary or business income. Even a property you live in yourself has a defined tax treatment — and the deductions available, particularly on home loan interest, are among the larger ones available under the old tax regime.
This guide covers how house property income is computed, what you can deduct, and how to report it.
The Three Categories of House Property for Tax Purposes
Self-Occupied Property (SOP): A property you use for your own residential purposes. Under current rules, if you own one or two properties and both are self-occupied (or one is self-occupied and you can’t occupy the other due to work location), both can be treated as self-occupied. The annual value of a self-occupied property is taken as nil — meaning you don’t pay tax on any notional rent, but your deductions are also limited.
Let-Out Property: A property you’ve rented out. The actual rent received (subject to a few adjustments) forms the basis of your taxable income from this property.
Deemed Let-Out Property: If you own more than two properties and treat more than two as self-occupied (or claim both as self-occupied without meeting the work-location condition for the second), the additional properties are treated as deemed let-out — meaning a notional rent is imputed even if you haven’t actually rented them out.
How Income from House Property Is Computed
Step 1: Determine Gross Annual Value (GAV)
For a let-out property, GAV is the higher of:
- Actual rent received or receivable for the year
- Expected rent (municipal value or fair rent, whichever is higher, capped at standard rent if applicable)
For a self-occupied property: GAV is nil.
Step 2: Deduct Municipal Taxes Paid
Subtract any municipal taxes (property tax) paid during the year to arrive at Net Annual Value (NAV).
NAV = GAV minus Municipal Taxes Paid by Owner
Step 3: Apply Standard Deduction
A flat 30% of NAV is allowed as a standard deduction under Section 24(a), representing repairs, maintenance, and similar expenses. This is available regardless of what you actually spent — you don’t need to maintain receipts for the 30% deduction. It applies only to let-out and deemed let-out properties (since NAV is nil for self-occupied, the 30% is also nil).
Step 4: Deduct Home Loan Interest Under Section 24(b)
Interest paid on a home loan for the property is deductible under Section 24(b):
For a self-occupied property (old tax regime only):
- Up to ₹2 lakh per year in interest is deductible, subject to conditions (loan taken on or after 1 April 1999 for construction/purchase, construction completed within 5 years of loan, etc.)
- If conditions aren’t met (older loans, or construction not completed within 5 years), the limit is ₹30,000 per year
For a let-out or deemed let-out property:
- The entire actual interest paid is deductible, with no upper limit
- Pre-construction period interest is deductible in 5 equal installments starting from the year of completion
Important: Under the new tax regime, the deduction for home loan interest on a self-occupied property is not available. Interest on a let-out property can still be claimed even under the new regime, but the overall loss from house property cannot be set off against other income (only carried forward) — this is a significant change from the old regime treatment.
Loss from House Property
Under the old tax regime: If your interest deduction on a let-out property exceeds the net annual value, the resulting loss from house property can be set off against your salary or other income, up to ₹2 lakh per year. Any excess loss beyond ₹2 lakh is carried forward for up to 8 years.
Under the new tax regime: Loss from house property (including interest deduction on let-out property) cannot be set off against other income — it can only be carried forward and set off against future house property income.
This set-off benefit is one of the main reasons some taxpayers with home loans find the old regime more beneficial — the ₹2 lakh interest deduction on self-occupied property plus the set-off of let-out property losses can make a meaningful difference.
Pre-EMI Interest During Construction
If your property is still under construction and you’re paying interest during that pre-construction period, this interest isn’t deductible immediately. Once the property is completed, you can claim this pre-construction interest in 5 equal installments starting from the year of completion, subject to the applicable limit for the property type.
TDS on Rent Paid by Tenants
If a tenant (individual or HUF) is paying rent above ₹50,000 per month, they’re required to deduct TDS at 2% under Section 194-IB and deposit it with the government. As the landlord, you’ll see this TDS reflected in your Form 26AS and should verify it before filing. Include rent received (gross, before TDS) as your income and claim the TDS as credit.
How to Report in Your ITR
- Use Schedule HP in your ITR (ITR-2 or ITR-3, not ITR-1 if you have more than one house property or let-out property income above certain thresholds)
- Enter details for each property separately — address, co-owner details if applicable, whether self-occupied or let-out, rent received, municipal taxes paid, and interest on home loan
- For home loans, you’ll need the interest certificate from your lender for the financial year showing principal and interest components separately — interest goes under Section 24, principal repayment goes under Section 80C
Common Mistakes to Avoid
- Claiming the full ₹2 lakh interest deduction on a self-occupied property under the new tax regime, where this deduction isn’t available
- Not reporting a second property as deemed let-out when it should be, assuming only properties with actual tenants need to be reported
- Confusing the principal repayment (Section 80C, up to ₹1.5 lakh combined with other 80C) with the interest deduction (Section 24(b), up to ₹2 lakh for SOP) — these are different deductions under different sections
- Not claiming the 30% standard deduction on let-out property income, which is available automatically without proof of expenses
- Treating rent received net of TDS deducted by the tenant as income, instead of reporting gross rent and claiming the TDS as credit
FAQs
Can I claim both HRA exemption (on rent paid) and home loan interest deduction (on a property I own) at the same time? Potentially yes, if you’re living in a rented accommodation in one city while owning a property in a different city that you can’t occupy due to work location. This is a factual determination and can attract scrutiny — maintain documentation supporting why you’re not occupying your own property.
What is the tax treatment if I own a flat jointly with my spouse? Each co-owner is taxed in proportion to their share in the property. Both can claim interest deduction under Section 24(b) and principal repayment under 80C, each up to their respective limits, proportionate to their share.
Is stamp duty and registration paid on a new property deductible? Yes, stamp duty and registration charges on a new residential property can be claimed under Section 80C (within the ₹1.5 lakh overall limit) in the year they’re paid.
Does rental income from a commercial property get taxed the same way as residential property? Rental income from any property — residential or commercial — is generally taxed under “Income from House Property” and follows the same framework of NAV, standard deduction, and interest deduction, with some specific conditions varying.
Can I carry forward a house property loss if I haven’t filed my ITR on time? No, losses can only be carried forward if the ITR for the year of the loss is filed on or before the due date. A belated return doesn’t allow carry-forward of losses — this is one of the reasons timely filing matters even if you have losses rather than tax due.
