Income-Tax Guide · AY 2026-27

Income from House Property —
How Rental Income Is Taxed

From Gross Annual Value to Net Annual Value, the 30% standard deduction under Section 24(a), the home-loan interest deduction under Section 24(b), self-occupied vs let-out treatment, loss set-off and how it changes under the new regime.

Updated for FY 2025-26 CA Reviewed Section 24 Deductions

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30%Standard deduction

Rs 2LSelf-occupied interest

Rs 2LLoss set-off / yr

8 yrsLoss carry-forward

Quick Answer

Rental income is taxed under the head "Income from House Property". Start with Gross Annual Value (GAV), subtract municipal taxes paid by the owner to get Net Annual Value (NAV), then deduct a flat 30% standard deduction under Section 24(a) and home-loan interest under Section 24(b) — capped at Rs 2 lakh for a self-occupied house, unlimited for a let-out one. A resulting loss can be set off against other income only up to Rs 2 lakh a year. Most of this applies under the old regime; the new (default) regime blocks self-occupied interest and the loss set-off.

Std deduction 30% of NAV

Self-occupied interest Rs 2L

Let-out interest No limit

Loss set-off Rs 2L

Renumbered under the Income-tax Act, 2025

From AY 2026-27 the Income-tax Act, 2025 re-codifies the old Sections 22-27 and Section 24 of the 1961 Act. The computation — GAV to NAV, the 30% standard deduction and the Rs 2 lakh self-occupied interest cap — is unchanged; "Section 24" remains the everyday reference.

Three categories

Self-Occupied vs Let-Out vs Deemed Let-Out

A property is taxed differently depending on how it is used. You may treat up to two houses as self-occupied (NAV nil); a third owned house that is neither self-occupied nor rented is deemed to be let out at fair rent.

Feature	Self-Occupied	Let-Out	Deemed Let-Out
Annual value (NAV)	Rs 0 (nil)	GAV − municipal tax	Fair rent − municipal tax
30% standard deduction 24(a)	N/A (NAV nil)	30% of NAV	30% of NAV
Interest u/s 24(b)	Up to Rs 2L	Actual, no limit	Actual, no limit
When it applies	Owner resides; up to 2 houses	Actually rented out	3rd+ house, kept vacant
Loss possible?	Yes (interest)	Yes	Yes

Self-occupied interest is Rs 2 lakh only if the loan was taken for purchase/construction and the property is acquired/constructed within 5 years; otherwise Rs 30,000.

Step by step

How to Compute House-Property Income

The order is fixed: GAV → less municipal taxes → NAV → less 30% standard deduction → less home-loan interest → taxable income (or loss). Here is a let-out flat: rent Rs 3,60,000/yr, municipal tax Rs 24,000, interest Rs 1,80,000.

GAVHigher of actual rent or lettable value

→

Less municipal taxProperty tax paid by owner

→

NAVBase for all deductions

→

Less 30% + interestSection 24(a) & 24(b)

→

Taxable HP incomeAdded to total income

Let-out flat — worked example

Gross Annual ValueRs 3,60,000

Less municipal tax− Rs 24,000

Net Annual ValueRs 3,36,000

Less 30% u/s 24(a)− Rs 1,00,800

Less interest u/s 24(b)− Rs 1,80,000

Taxable HP incomeRs 55,200

Self-occupied — loss example

Net Annual ValueRs 0 (nil)

Less 30% u/s 24(a)− Rs 0

Less interest u/s 24(b)− Rs 2,00,000

Loss from house property(Rs 2,00,000)

Set-off vs other incomeRs 2,00,000

Tax benefit @30%Rs 62,400

Only the principal goes under 80C — interest under 24(b)

The principal repayment of a home loan is a Section 80C deduction (within Rs 1.5 lakh); the interest is a separate Section 24(b) deduction (Rs 2 lakh for a self-occupied house). Do not double-count the EMI. Both are available under the old regime only.

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The two deductions

Section 24 Deductions in Detail

Deduction	Section	Self-Occupied	Let-Out	Condition
Standard deduction on NAV	24(a)	Nil (NAV 0)	30% of NAV	Flat; no expense proof needed
Interest — purchase/construction	24(b)	Rs 2,00,000	No limit	Acquired/built within 5 yrs of loan
Interest — repair / older loan	24(b)	Rs 30,000	No limit	If 5-yr condition not met
Pre-construction interest	24(b)	1/5th per yr	1/5th per yr	Spread over 5 yrs from possession

Self-occupied interest deduction (24(b)) and the house-property loss set-off apply under the OLD regime only.

Old vs New Regime for House Property

The new tax regime is now the default. It disallows the self-occupied home-loan interest deduction and does not let a house-property loss be set off against salary or other income. Compare both before you file.

Old

Old regime — full HP benefits

Self-occupied interest up to Rs 2 lakh (24(b))
Let-out interest with no limit
HP loss set-off vs other income up to Rs 2 lakh
80C principal + 80D etc. also allowed

New

New regime (default) — limited

No self-occupied interest deduction
Let-out interest allowed only up to that property’s income
No HP loss set-off against salary/other heads
Lower slabs, standard deduction Rs 75,000
87A rebate up to Rs 12L taxable income

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Set-off & carry-forward

Loss from House Property

When Section 24 deductions exceed the NAV, you get a loss from house property. The set-off is capped and the excess is carried forward.

Same-year set-off: against salary, capital gains or other heads — but only up to Rs 2,00,000 a year (old regime).
Carry-forward: the balance above Rs 2 lakh carries forward 8 assessment years, set off only against future house-property income.
Filing condition: to carry forward, file the ITR by the due date; a belated return still gets the same-year Rs 2 lakh set-off but forfeits carry-forward.
New regime: no set-off of HP loss against other heads at all.

TDS on rent — Section 194-IB

A tenant (individual/HUF not under tax audit) paying more than Rs 50,000 per month rent to a resident landlord must deduct TDS at 2% under Section 194-IB (rate cut from 5% to 2% w.e.f. 1 Oct 2024), deducted once in the last month of tenancy/year and reported in Form 26QC. See our TDS on rent guide. The landlord claims it as tax credit.

Co-Ownership & Joint Home Loans

For a jointly owned property, income and deductions are split in the ownership ratio. Where both spouses are co-owners and co-borrowers, each can claim interest up to Rs 2 lakh independently (a self-occupied house up to Rs 4 lakh across the couple) and 80C principal within their own Rs 1.5 lakh limit — provided each repays from their own funds.

Rent agreement / rent receipts
Municipal / property-tax paid receipt
Home-loan interest certificate from lender
Home-loan principal certificate (for 80C)
Co-ownership & repayment share proof
Pre-construction interest working (1/5th)
Old regime selected (for interest & loss)
Form 26QC / TDS credit (if rent > Rs 50k/mo)

Multiple properties, joint loan or a house-property loss to carry forward?

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Government sourcesSections 22-27 & 24: incometax.gov.in · Income-tax Act, 2025 (re-codification w.e.f. AY 2026-27) · Section 24(b) interest cap & Rs 2L loss set-off: Income-tax Act 1961 · TDS on rent: Section 194-IB (2% w.e.f. 1 Oct 2024), Form 26QC

Income from House Property — Frequently Asked Questions

Basics

How is rental income taxed in India?

Rental income is taxed under the head "Income from House Property". Start with Gross Annual Value (GAV) — the higher of actual rent received or the annual lettable value — deduct municipal taxes paid by the owner to get Net Annual Value (NAV), then a flat 30% standard deduction under Section 24(a) and home-loan interest under Section 24(b). The net figure is added to your total income and taxed at slab rates. For FY 2025-26, a tenant paying rent above Rs 50,000 a month must deduct 2% TDS under Section 194-IB.

What is the difference between GAV and NAV?

Gross Annual Value (GAV) is the higher of the actual rent received/receivable or the reasonable expected (lettable) rent of the property. Net Annual Value (NAV) is GAV minus the municipal taxes actually paid by the owner during the year. All further deductions — the 30% standard deduction and the home-loan interest — are computed on the NAV, not on the gross rent.

Which properties are self-occupied, let-out or deemed let-out?

A property you live in is self-occupied and its NAV is treated as nil; you may claim up to two houses as self-occupied. A property actually rented out is let-out, taxed on real rent. If you own a third residential property that is neither self-occupied nor rented, it is "deemed to be let out" and taxed on its fair market rent even though no rent is received.

Section 24

What is the 30% standard deduction under Section 24(a)?

The 30% standard deduction under Section 24(a) is a flat deduction on the Net Annual Value of a let-out or deemed let-out property, allowed irrespective of actual expenses. It is meant to cover repairs, maintenance, insurance and collection costs — you cannot claim these separately on top of the 30%. It is not available for a self-occupied property because its NAV is nil.

How much home-loan interest can I claim under Section 24(b)?

For a self-occupied house the interest deduction under Section 24(b) is capped at Rs 2,00,000 a year (Rs 30,000 if the loan was not for purchase/construction or the property was not acquired/built within 5 years). For a let-out or deemed let-out property the full actual interest is deductible with no upper limit, though the loss it creates can be set off against other income only up to Rs 2 lakh. This deduction is available under the old regime.

Can I claim home-loan interest on a let-out property without any limit?

Yes. For a let-out or deemed let-out property the entire interest paid during the year is deductible under Section 24(b) with no cap, unlike the Rs 2 lakh limit on a self-occupied house. But if that interest exceeds the net rental income and produces a loss, the loss can be set off against other heads only up to Rs 2 lakh in that year; the balance carries forward for 8 assessment years.

What is pre-construction interest and how is it claimed?

Interest paid on a home loan during the period before the property is completed is "pre-construction interest". It is not deductible in those years; instead the total is allowed in five equal annual instalments starting from the year the construction is completed / possession is taken. For a self-occupied house it still counts within the overall Rs 2 lakh Section 24(b) cap.

Loss & Set-off

Can a loss from house property be set off against salary?

Yes, but with a cap. A loss from house property — which arises when Section 24(b) interest exceeds the NAV — can be set off against salary or any other head in the same year, up to a maximum of Rs 2,00,000 per year under the old regime. Any balance beyond Rs 2 lakh is carried forward for 8 assessment years and can then be set off only against future house-property income, not against salary.

For how long can house-property loss be carried forward?

A house-property loss that cannot be set off in the current year is carried forward for 8 assessment years immediately following the year of loss, and in those years it can be set off only against income from house property. To carry it forward you must file your ITR by the due date; a belated return still allows the same-year set-off of up to Rs 2 lakh but not the carry-forward.

Is loss from house property allowed under the new tax regime?

No. Under the new (default) regime the self-occupied home-loan interest deduction is not available, and a house-property loss cannot be set off against salary or any other head. You may still deduct interest on a let-out property, but only up to that property's own income — it cannot create a set-offable loss. If home-loan interest is significant, compare the old regime before filing.

Regime

Is home-loan interest allowed in the new tax regime?

For a self-occupied house, no — the new regime disallows the Section 24(b) interest deduction. For a let-out property the interest is allowed, but only to the extent of that property's income; it cannot produce a loss to set off elsewhere. The old regime, by contrast, allows the full Rs 2 lakh self-occupied interest and the Rs 2 lakh loss set-off, so borrowers often gain by choosing it.

Should I choose the old regime because of my home loan?

Often, but not always. If your Section 24(b) interest plus 80C principal and other deductions are large, the old regime usually wins. If the home loan is small or nearly repaid, the new regime's lower slabs, Rs 75,000 standard deduction and 87A rebate (up to Rs 12 lakh taxable income) can save more even without the interest deduction. Run both with a calculator before filing.

TDS & Co-ownership

When must a tenant deduct TDS on rent?

Under Section 194-IB, an individual or HUF (not under tax audit) paying rent of more than Rs 50,000 a month to a resident landlord must deduct TDS at 2% (reduced from 5% w.e.f. 1 October 2024). It is deducted once — in the last month of the year or of the tenancy — and paid using Form 26QC without needing a TAN. The landlord claims it as tax credit in the ITR.

How is a jointly owned house taxed?

Income and deductions are shared in the ownership ratio. Each co-owner computes their share of NAV, claims 30% under 24(a) and interest under 24(b) in proportion, and reports the net figure in their own ITR. Where spouses are both co-owners and co-borrowers, each can independently claim interest up to Rs 2 lakh (up to Rs 4 lakh across the couple for a self-occupied house) and 80C principal within their own limit, if each repays from their own funds.

Is deemed let-out property really taxed even if it earns no rent?

Yes. If you own more than two houses, the third and subsequent ones (of your choice) are "deemed to be let out" and taxed on their fair market rent even though no rent is received. You still get the 30% standard deduction and the home-loan interest deduction against this notional income. The rule discourages holding multiple vacant properties purely to avoid tax.

Filing

Which ITR form reports income from house property?

Salaried taxpayers with one house property and no capital gains generally use ITR-1 (Sahaj). If you have more than one house property, a carried-forward loss, or other complexities, use ITR-2 (or ITR-3 if you also have business income). Report the property under Schedule HP, entering GAV, municipal taxes, the 30% deduction and interest, then let the loss flow into set-off.

Done-for-you

Related TaxClue Services

Income Tax Return FilingCA-assisted ITR with correct house-property computation, 24(b) interest and loss set-off.Explore →Home Loan Tax BenefitClaim 24(b) interest and 80C principal on your home loan the right way.Explore →TDS on Rent (194-IB / 194-I)Deduct and deposit rent TDS and file Form 26QC without a TAN.Explore →Rental Income Tax PlanningStructure ownership and loans to legally minimise tax on rent.Explore →

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