House Property & Home Loan Taxation Under the Income-tax Act 2025: What Changes
Reviewed by CA Nikhil Gupta · Last reviewed 17 June 2026
Owning a home — whether self-occupied, let out, or financed with a home loan — comes with a cluster of tax provisions: Section 24(b) interest deduction, Section 80C principal repayment, the ₹2 lakh loss set-off cap, and the computation of income from house property itself. Under the Income-tax Act, 2025, all of these get new section numbers, but the rules themselves are reported to carry forward. Here's the full picture for homeowners.
The Three Pillars of House Property Taxation
Under the Income-tax Act, 1961, taxation of house property and home loans rests on three main provisions:
- Section 24(b) — deduction for home loan interest: up to ₹2 lakh/year for self-occupied property (if construction completed within 5 years of loan); no cap for let-out property (but subject to the overall loss set-off cap)
- Section 80C — home loan principal repayment counted within the overall ₹1.5 lakh Chapter VIA limit (now Section 123, as covered in our Chapter VIA renumbering article)
- Section 71(3A) / Section 22-27 — computation of income/loss from house property, including the ₹2 lakh annual cap on set-off of house property loss against other income heads (with the balance carried forward for 8 years)
What Gets Renumbered
| Old Provision | Covers | Reported Change Under 2025 Act |
|---|---|---|
| Section 24(b) | Home loan interest deduction (₹2 lakh self-occupied cap) | New section number; ₹2 lakh cap, 5-year construction-completion condition unchanged |
| Section 80C (home loan principal) | Principal repayment within ₹1.5 lakh limit | Now Section 123 — see our Chapter VIA renumbering article; ₹1.5 lakh combined limit unchanged |
| Sections 22-27 | Computation of income from house property (annual value, standard 30% deduction, municipal taxes) | Renumbered; 30% standard deduction on net annual value unchanged |
| Section 71(3A) | ₹2 lakh cap on house property loss set-off against other income | Renumbered; ₹2 lakh cap and 8-year carry-forward unchanged |
| Section 80EEA | Additional ₹1.5 lakh interest deduction for affordable housing (subject to conditions/sunset dates) | Now Section 131 (per our Chapter VIA article) — subject to whatever sunset/eligibility conditions apply |
Two Houses Under ITR-1: A Genuinely Useful Change
As covered in our ITR forms article, ITR-1 for AY2026-27 now permits reporting income/loss from up to 2 self-occupied house properties (previously ITR-1 was restricted to 1 house property, forcing taxpayers with 2 self-occupied properties — a common situation for those who relocated for work but retained their original home — to file the more complex ITR-2). This is a procedural simplification that directly benefits many salaried homeowners, independent of the broader renumbering exercise.
Worked Example: Self-Occupied Property with Home Loan
A salaried taxpayer under the old regime has a home loan with ₹2,20,000 annual interest and ₹1,80,000 principal repayment, on a self-occupied property completed within 5 years of the loan:
- Interest deduction: ₹2,00,000 (capped at the limit, even though actual interest is ₹2,20,000) — reported under the renumbered Section 24(b)-equivalent provision
- Principal repayment: Counted within the overall ₹1.5 lakh Section 123 (formerly 80C) limit, alongside any other Section 123 investments (PPF, ELSS, insurance, etc.)
Both the ₹2,00,000 interest cap and the ₹1.5 lakh combined Section 123 limit are reported to be unchanged — only the section citations differ on the taxpayer's computation sheet.
Worked Example: Let-Out Property
A taxpayer rents out a second property: annual rent ₹3,00,000, municipal taxes ₹15,000, home loan interest ₹3,50,000:
- Net Annual Value: ₹3,00,000 - ₹15,000 = ₹2,85,000
- Standard deduction (30%): ₹85,500
- Interest deduction: ₹3,50,000 (no cap for let-out property)
- Income/(loss) from house property: ₹2,85,000 - ₹85,500 - ₹3,50,000 = (₹1,50,500)
- This loss can be set off against other income (salary, etc.) up to ₹2,00,000/year — fully absorbed here since it's below the cap. Any excess beyond ₹2,00,000 would carry forward for 8 years.
This entire computation framework — the 30% standard deduction, no cap on let-out interest, and the ₹2 lakh set-off cap with 8-year carry-forward — is reported to carry forward unchanged under the Income-tax Act, 2025's renumbered provisions.
House property under the 2025 Act — confirmed provisions, not “reported continuity”
Decision table
| Situation | 2026 treatment / control | Why it matters |
|---|---|---|
| Let-out property | Start with annual value, municipal tax treatment and 30% deduction, then interest. | Do not use self-occupied ₹2 lakh cap mechanically. |
| Self-occupied property | Apply the statutory annual-value and interest-limit conditions. | Construction/acquisition conditions matter. |
| New tax regime | Check which house-property deductions/loss set-offs are permitted under the chosen regime. | A deduction existing in the Act may be restricted by regime. |
| AY 2026–27 vs TY 2026–27 | Use 1961 Act for AY 2026–27 and 2025 Act for tax year from 1 April 2026. | Same economic rule can have different section numbers. |
Worked practical example
A let-out property has annual rent ₹3 lakh, qualifying municipal taxes ₹15,000 and interest ₹3.5 lakh. Compute annual value and 30% deduction first; then apply interest and loss rules for the correct year/regime rather than assuming the self-occupied cap.
Evidence checklist
- ownership proof
- rent agreement/receipts
- municipal tax proof
- loan interest certificate
- completion/acquisition evidence
Primary-source checks: Income-tax Act, 2025 — section 22 in official PDF · Income Tax Department
Use this with the original article: this module tightens current-law, edge-case and evidence controls; it does not replace the article's existing explanation or your fact-specific professional review.
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