Legal Reference
Sections 22-25 (house property), Section 23 (annual value), Section 24 (deductions — 30% standard + interest), ITA 2025 | Two self-occupied: zero annual value | Beyond 2: deemed rent | Unlimited interest for let-out
1. Annual Value: The Foundation
Income from house property under ITA 2025 is computed on the basis of annual value — the expected rental income from the property. For self-occupied property (up to 2 properties), annual value is NIL — no rental income is attributed. For let-out and deemed let-out properties, the annual value is the higher of actual rent received or municipal ratable value (as assessed by the municipality).
2. Two Self-Occupied Properties: No Tax
A taxpayer can designate up to 2 residential properties as self-occupied — both get zero annual value. For any additional properties beyond 2 (whether actually vacant or self-used), they are treated as "deemed let-out" — their fair market rent is added to income even if no actual rent is received. The taxpayer chooses WHICH 2 properties to treat as self-occupied — typically selecting those with the highest market rent to minimise deemed income.
3. Let-Out Property: Full Computation
- Gross Annual Value (GAV) = Higher of actual rent or municipal ratable value
- Less: Municipal taxes actually paid by the owner in the year
- Net Annual Value (NAV) = GAV minus municipal taxes
- Less: Standard deduction = 30% of NAV (mandatory, no proof needed)
- Less: Interest on home loan (Section 24(b)) — NO CAP for let-out property
- Income from house property = Result (can be negative = loss)
4. Interest Deduction: Key Differences
| Property Type | Interest Limit | Regime |
|---|
| Self-occupied (new/under construction) | Rs 2 lakh per year cap | Old regime only |
| Let-out property | Actual interest — NO CAP | Old and new regime |
| Deemed let-out | Actual interest — NO CAP | Old and new regime |
5. House Property Loss: Rs 2L Set-Off
When interest on a self-occupied property exceeds Rs 2L cap, or when let-out property interest exceeds NAV minus 30%, a house property loss arises. Under ITA 2025, house property loss can be set off against any other income in the current year up to Rs 2 lakh. Excess loss beyond Rs 2L is carried forward for 8 years — set off only against house property income in future years, not against salary or other heads.
6. Pre-Construction Interest
Interest paid during the construction period is deductible in 5 equal instalments starting from the year of possession. Combined with post-possession interest, the total annual deduction for self-occupied property is capped at Rs 2L. For let-out properties, there is no cap — full pre-construction instalments plus post-possession interest are deductible.
7. Why TaxClue
Multiple properties — especially with self-occupied/let-out classification decisions and pre-construction interest — require careful computation. TaxClue maximises house property deductions and correctly computes the Rs 2L loss set-off. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
Need Help with Compliance?
Our CA experts guide you through the entire process — registration to filing.
❓ Frequently Asked Questions
How is income from a let-out property computed?
Computation under ITA 2025: Start with Gross Annual Value (higher of actual rent or municipal ratable value). Deduct municipal taxes paid by owner. Get Net Annual Value. Deduct 30% standard deduction (compulsory, no proof). Deduct actual interest on home loan (no monetary cap for let-out). The result is income from house property — taxable at slab rates. If interest exceeds NAV minus 30%, a loss arises.
What is deemed let-out property?
If you own more than 2 residential properties and self-occupy more than 2, the extra properties (beyond 2) are treated as deemed let-out — even if actually vacant. Their fair market rent is added to income as if rented. You choose which 2 to designate as self-occupied. Strategically, designate the 2 properties with the highest market rent as self-occupied to minimise the deemed rental income from the remaining properties.
Is there a limit on home loan interest for let-out property?
No. For let-out (rented) and deemed let-out properties, the full actual home loan interest is deductible from house property income without any cap. This contrasts with self-occupied property where interest is capped at Rs 2 lakh per year. Many property investors leverage this by letting out their property — the uncapped interest deduction often creates a tax-loss that can be set off against other income up to Rs 2L.
What is the Rs 2 lakh house property loss rule?
House property loss (when interest exceeds net annual value after 30% deduction) can be set off against any other income head — salary, capital gains, business, other sources — up to Rs 2 lakh in the current year. If loss exceeds Rs 2L, the excess carries forward for 8 years — set off only against house property income in future years. This Rs 2L cap prevents large artificial losses from real estate from significantly reducing salary income tax.
Can stamp duty be claimed as a deduction?
Stamp duty and registration charges paid on property purchase are eligible for deduction under Section 123 (80C basket) of ITA 2025 in the year of payment — within the overall Rs 1.5L limit (old regime). Both co-owners can claim their proportionate share. This is a one-time deduction available only in the year of purchase registration, not spread over the property ownership period.
