TaxSaral

Section 22 · was Section 24(b) in the 1961 Act

Home Loan Interest — Deduction Limit

Interest on housing loan is deductible — capped at ₹2,00,000 for self-occupied property; unlimited for let-out property (subject to the ₹2L overall loss set-off cap).

Who it applies to: Anyone who has taken a home loan for purchase, construction, repair, or renovation of a house property.

Key points

  • For self-occupied property: maximum ₹2,00,000 deduction per year regardless of actual interest paid.
  • Pre-construction interest: deductible in 5 equal instalments from the year construction is completed.
  • The ₹2L cap applies to the aggregate across all self-occupied properties — not ₹2L each.
  • Under the default (new) regime, this deduction is NOT available for self-occupied property.

Worked examples

1. Self-occupied home loan — cap in action

Vikram bought a flat worth ₹80L with a ₹60L loan at 9% interest. Annual interest in TY 2026-27 = ₹5,20,000. He lives in the flat (self-occupied). He uses the optional regime.

Annual interest paid:       ₹5,20,000
Maximum deduction allowed: ₹2,00,000 (self-occupied cap)
Deduction claimed:         ₹2,00,000

House property income:
  Annual value (self-occupied): Nil
  Less: Home loan interest:     – ₹2,00,000
  Income from HP:               – ₹2,00,000 (loss)

This ₹2L loss is set off against Vikram's salary income.

Result: Vikram can only deduct ₹2L even though he paid ₹5.2L in interest. The remaining ₹3.2L is lost (not carried forward for self-occupied property). This is why the optional regime still appeals to high-loan borrowers.

2. Let-out property — full interest deductible

Same flat but now rented at ₹25,000/month. NAV = ₹2,85,000. Loan interest = ₹5,20,000.

NAV:                        ₹2,85,000
Less: 30% standard deduction: – ₹85,500
Less: Home loan interest:      – ₹5,20,000
House property income:         – ₹3,20,500 (loss)

Set-off against salary: only ₹2,00,000 can be set off this year.
Balance ₹1,20,500 carried forward for up to 8 years.

Result: For let-out property there is no ₹2L cap on interest, but total house property loss that can be set off against other income is capped at ₹2L per year. The excess is carried forward.

Related sections

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative; verify with a Chartered Accountant before filing.