"Income from House Property" is a separate head of income in your return — and it applies whether your property is rented out, self-occupied, or lying vacant. It's also the head taxpayers most often get wrong, either by not reporting a second property at all, or by claiming a home loan deduction they're no longer entitled to. This guide walks through the computation and the rules that decide how much you actually pay.
The three categories of property
Everything starts with classifying each property you own:
- Self-occupied — you live in it, or it's your home even if you can't occupy it (say, you work in another city and rent there). Up to two properties can be treated as self-occupied.
- Let-out — rented to a tenant.
- Deemed let-out — if you own three or more properties, only two can be self-occupied; the rest are treated as let out even if they're empty, and taxed on notional rent. This is the rule that surprises people most.
The computation, step by step
| Step | What it is |
|---|---|
| Gross Annual Value (GAV) | Self-occupied: nil. Let-out: actual rent (or expected rent, if higher). Deemed let-out: expected rent. |
| Less: Municipal taxes | Only if borne by the owner and actually paid during the year |
| = Net Annual Value (NAV) | |
| Less: Standard deduction (Section 24(a)) | 30% of NAV |
| Less: Interest on home loan (Section 24(b)) | Self-occupied: capped. Let-out: full interest |
| = Income from House Property | Can be negative — i.e. a loss |
A note on municipal taxes
They're deductible on a payment basis only. If your FY 2024-25 municipal tax was paid in April 2025, it's deductible in FY 2025-26 — the year of payment, not the year it related to. And only the owner's payment counts; if the tenant pays it, you can't claim it.
The 30% standard deduction
This is a flat 30% of Net Annual Value, allowed regardless of what you actually spent on repairs, insurance, or maintenance. You don't need bills, and you can't claim more by producing them. It's available under both tax regimes.
Home loan interest under Section 24(b)
- Self-occupied property: capped at ₹2,00,000 a year. Note this is an aggregate cap across both self-occupied properties, not ₹2 lakh each. A lower ₹30,000 limit applies where the loan was taken for repairs, renewal, or reconstruction, or where the conditions for the ₹2 lakh limit aren't met — most commonly when construction isn't completed within five years from the end of the financial year in which the loan was taken.
- Let-out or deemed let-out property: the entire interest is deductible, with no upper limit.
Pre-construction interest
Interest paid before the property was ready isn't lost. It's claimed in five equal annual instalments, starting from the year construction is completed — within the applicable cap.
The big one: what the new regime removes
This is the most consequential difference between the two regimes for homeowners:
- Self-occupied property: under the new regime, the Section 24(b) interest deduction is not available at all. Principal repayment under 80C also goes. A borrower with a large home loan on their own home gets nothing.
- Let-out property: interest is deductible against the rental income. But if the interest exceeds the rent and creates a loss, that loss cannot be set off against your salary or other income under the new regime.
- The 30% standard deduction survives in both regimes.
For most salaried people with one home and a sizeable loan, this alone can decide the regime question. See our guide to the new vs old tax regime.
Set-off and carry-forward of losses
Under the old regime:
- A loss under this head can be set off against other income (salary, business, etc.) up to ₹2,00,000 a year.
- Any unabsorbed loss carries forward for 8 assessment years, but can then only be set off against house property income — not salary.
- There is no limit on setting off a house property loss against house property income in the same year; the ₹2 lakh cap applies only to set-off against other heads.
One useful quirk: unlike most losses, a house property loss can be carried forward even if you file your return after the due date. Most other loss carry-forwards are forfeited by late filing.
Special situations
- Co-owned property. Where the shares are definite and ascertainable, each co-owner reports the rent, municipal taxes, annual value, and interest according to their share, and each is entitled to deductions on that share.
- Unrealised rent. Rent you genuinely couldn't recover from a tenant can be excluded from the actual rent, subject to conditions.
- Vacancy. Where a let-out property was vacant for part of the year and the actual rent falls below expected rent because of it, vacancy relief applies. Note that personal use is not vacancy.
- Property held as stock-in-trade. For builders and developers, annual value is treated as nil for up to two years after construction is completed.
- Rent with service or furniture charges. Where the arrangements are genuinely separable, the building rent and the service or furniture component should be reported separately — only the building rent belongs under this head.
Reporting it in your ITR
House property income goes in Schedule HP. Which form you use depends on how many properties you own — and there's good news for AY 2026-27: ITR-1 now accommodates up to two house properties (it was one previously). Three or more, and you'll need ITR-2. See our guide to which ITR form to file.
Keep ready: your home loan interest certificate, municipal tax receipts, the rent agreement, and co-owner details.
Also remember the tenant's side: an individual paying rent above ₹50,000 a month is required to deduct TDS under Section 194-IB. If you're a landlord, that TDS should appear in your Form 26AS — see our guide to Form 26AS vs AIS.
What changes under the Income Tax Act, 2025
From income earned on or after 1 April 2026, this head is governed by Sections 20 to 22 of the Income Tax Act, 2025. The substantive rules are unchanged — the same 30% standard deduction, the same ₹2 lakh self-occupied interest cap, the same two-property self-occupied limit. Only the section numbers change. Your AY 2026-27 return still uses the familiar Income Tax Act, 1961 numbering.
Common mistakes to avoid
- Not reporting a third property — it's deemed let out and taxable on notional rent, even if empty.
- Claiming self-occupied home loan interest under the new regime — it isn't allowed.
- Assuming the ₹2 lakh cap is per property — it's an aggregate across both self-occupied ones.
- Deducting municipal taxes on an accrual basis — it's payment basis only.
- Trying to claim actual repair costs — the 30% deduction is flat and replaces them.
- Co-owners each claiming the full interest — it must be split by share.
A note on changing rules
Regime rules, caps, and section numbering are all in motion, and the ₹2 lakh self-occupied cap has been the subject of repeated Budget speculation. Treat this as a current-position guide for FY 2025-26 and confirm the applicable limits before filing.
Conclusion
Income from house property follows a fixed path: establish the Gross Annual Value, deduct municipal taxes paid, take the flat 30% standard deduction, then deduct home loan interest — ₹2 lakh for a self-occupied home, unlimited for a let-out one. Watch the two rules that catch people out: a third property is deemed let out even when vacant, and the new regime removes the self-occupied interest deduction entirely. Classify each property correctly, keep your interest certificate and municipal receipts, and run both regimes before you choose.
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FAQs
1. How is income from house property calculated? Start with Gross Annual Value (nil for self-occupied; actual or expected rent for let-out), deduct municipal taxes paid by the owner to get Net Annual Value, then deduct a flat 30% standard deduction and home loan interest under Section 24(b).
2. I own three flats and one is empty. Is it taxable? Yes. Only two properties can be treated as self-occupied. The third is "deemed let out" and taxed on its expected rent, even if it's vacant and earning nothing.
3. Can I claim home loan interest under the new tax regime? Not for a self-occupied property — the deduction is unavailable. For a let-out property, interest is deductible against the rental income, but any resulting loss cannot be set off against your salary or other income.
4. What is the 30% standard deduction on house property? A flat deduction of 30% of Net Annual Value, allowed regardless of actual spending on repairs or maintenance. You need no bills, and cannot claim more. It applies under both tax regimes.
5. How much house property loss can I set off? Up to ₹2,00,000 against other income heads in a year under the old regime. Any unabsorbed loss carries forward for 8 assessment years, set off against house property income only. Unusually, this carry-forward survives even if you file late.
6. Can I claim the ₹2 lakh interest deduction on both my self-occupied homes? No. The ₹2,00,000 cap is an aggregate limit across both self-occupied properties, not per property.
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Suggested Internal Links
- Deductions Beyond 80C → `/deductions-other-than-80c/` — anchor: "other deductions you can claim"
- New vs Old Tax Regime → `/new-vs-old-tax-regime/` — anchor: "comparing the two tax regimes"
- Which ITR Form to File → `/which-itr-form-to-file/` — anchor: "which ITR form applies"
- HRA Exemption → `/hra-exemption/` — anchor: "claiming HRA exemption"
- Form 26AS vs AIS → `/form-26as-vs-ais/` — anchor: "checking TDS in Form 26AS"
- ITR for Salaried Employees → `/itr-for-salaried-employees/` — anchor: "filing as a salaried employee"
- ITR Filing Service → `/services/itr-filing/` — anchor: "get your return filed"
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About the author
Srishty
Senior Advisor at Regikart. Want to discuss this in the context of your business?
