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The 2-Minute Summary
If you have taken a home loan to buy, build, repair, or reconstruct a property, the interest you pay on it qualifies for a tax deduction under the Income Tax Act 2025. This deduction is claimed while computing Income from House Property under Section 22. The amount you can deduct depends on whether the property is self-occupied or let out.
- For a self-occupied property: the maximum deduction is Rs. 2,00,000 per year, subject to conditions.
- For a let-out or deemed let-out property: there is no ceiling. You can deduct the entire interest paid.
Example: Vikram lives in his own flat in Noida and pays Rs. 2,80,000 as home loan interest in Tax Year 2026-27. Since it is self-occupied, only Rs. 2,00,000 is deductible. The remaining Rs. 80,000 is not allowed. His house property income: Annual Value nil minus Rs. 2,00,000 interest = loss of Rs. 2,00,000. This loss can set off against his salary income.
Example: Sunita has let out her second flat in Pune on rent. Her home loan interest for that flat is Rs. 3,50,000. Since it is a let-out property, the entire Rs. 3,50,000 is deductible against the rental income. There is no ceiling.
Legal Basis: Section 22 of Income Tax Act 2025
Section 22 is the provision for deductions from income from house property. Section 22(1)(b) allows deduction of interest payable on capital borrowed for acquisition, construction, repair, renewal, or reconstruction of a property. Section 22(2) then restricts this deduction for self-occupied properties (properties referred to in Section 21(6)) as follows:
- Rs. 2,00,000, where the property was acquired or constructed with borrowed capital, the acquisition or construction is completed within five years from the end of the Tax Year in which the capital was borrowed, and the assessee furnishes a certificate from the lender specifying the interest payable.
- Rs. 30,000 in any other case, meaning where the five-year construction condition is not met, or where the loan is for repair or renovation rather than acquisition or construction.
Section 22(5) further clarifies that the aggregate of Rs. 2,00,000 deduction applies across all self-occupied properties taken together, not per property.
Which properties are self-occupied?
Under Section 21(6), a property’s annual value is taken as nil if the owner occupies it for own residence or cannot actually occupy it for any reason (such as working in another city). Section 21(7) specifies that this nil annual value applies to a maximum of two properties as chosen by the assessee. If you own three houses and none is let out, two can be treated as self-occupied (annual value nil) and the third is treated as deemed let-out (annual value computed on notional rent basis).
The Five-Year Construction Condition
For the higher Rs. 2,00,000 deduction ceiling to apply on a self-occupied property, the property must be acquired or constructed within five years from the end of the Tax Year in which the loan was taken.
Example: Arun takes a home loan in Tax Year 2020-21 (i.e., April 2020). Five years from the end of that Tax Year = 31st March 2026. If construction is completed by 31st March 2026, the Rs. 2,00,000 deduction applies. If construction finishes only in September 2026, the ceiling drops to Rs. 30,000 for self-occupied properties.
For let-out properties this condition does not matter because there is no ceiling at all on interest deduction.
Pre-Construction Interest: Section 22(1)(c)
You often start paying EMIs or interest before the property is ready for possession. The interest paid during the construction period, from the date of the loan to 31st March of the year before the year of completion, is called pre-construction interest. Under Section 22(1)(c), this pre-construction interest cannot be deducted in the year it is paid. Instead, it is accumulated and then allowed as a deduction in five equal annual instalments starting from the Tax Year in which construction is completed or possession is taken.
Example: Priya takes a loan in April 2022. She pays Rs. 1,80,000 as interest during construction (Tax Years 2022-23, 2023-24, 2024-25). Possession is in October 2025 (Tax Year 2025-26). Pre-construction interest = Rs. 1,80,000. Annual deduction = Rs. 1,80,000 divided by 5 = Rs. 36,000 per year from Tax Year 2025-26 to 2029-30. This Rs. 36,000 is allowed each year in addition to the regular annual interest, subject to the Rs. 2,00,000 ceiling for self-occupied property.
Section 22(3) clarifies that the pre-construction interest deduction is computed after reducing any amount already allowed under any other provision. This prevents double counting.
Certificate from the Lender: Section 22(4)
For the Rs. 2,00,000 deduction on self-occupied property, the Act requires the assessee to furnish a certificate from the lender. Under Section 22(4), this certificate must specify:
- The amount of interest payable on the original borrowed capital.
- The interest payable on any subsequent loan taken to repay the original loan.
In practice, this is the interest certificate your bank issues every year. Obtain it before February so your employer can factor it into the TDS calculation for the year.
Interest on Foreign Borrowing: Section 22(6)
If you have borrowed money outside India and pay interest to a foreign lender, that interest is not deductible unless TDS has been deducted on it under Chapter XIX-B of the Act, or there is a responsible agent in India. This prevents deduction of interest on untaxed foreign borrowings.
House Property Loss and Set-Off
For a self-occupied property, Annual Value under Section 21(6) is nil. The only deduction is interest under Section 22(1)(b) and pre-construction interest under Section 22(1)(c). Since there is no income but there is a deduction, the result is always a loss. This house property loss can be set off against income from any other head in the same Tax Year. However, under Section 118(1), the maximum set-off of house property loss against other heads in a single year is restricted to Rs. 2,00,000. Any remaining loss beyond Rs. 2,00,000 is carried forward for up to 8 Tax Years and can only be set off against future house property income. Under the new tax regime (Section 202(1)), Section 22(1)(b) deduction is specifically excluded for self-occupied properties. This means if you are under the new regime, home loan interest on a self-occupied property gives no tax benefit. For let-out properties the interest deduction continues even under the new regime.
Joint Home Loan: Double the Benefit
If two co-owners take a joint home loan and both are repaying the loan, each co-owner can independently claim the interest deduction in proportion to their share of repayment, subject to the Rs. 2,00,000 ceiling per person for self-occupied properties. Both persons must be co-owners of the property (names in the sale deed) and co-borrowers on the loan. Being only a co-borrower without co-ownership does not entitle you to the deduction.
At a Glance
| Item | Details |
| Provision | Section 22 of Income Tax Act 2025 (old Section 24(b) of 1961 Act) |
| Self-occupied property: interest limit | Rs. 2,00,000 per year (if construction within 5 years) |
| Self-occupied property: if 5-year condition not met | Rs. 30,000 per year |
| Let-out or deemed let-out property | Full interest allowed, no ceiling |
| Pre-construction interest | Deductible in 5 equal instalments from year of possession |
| Certificate required | Yes, from lender specifying interest amount |
| New regime (Section 202(1)) | Self-occupied property interest NOT deductible; let-out property interest remains deductible |
| House property loss set-off limit | Rs. 2,00,000 per year against other heads |
| Carry forward period for remaining loss | 8 years, only against house property income |
Practical Compliance Checklist
- Obtain an interest certificate from your bank before February each year. Submit it to your employer for TDS adjustment under Section 392(4)(iii).
- Track pre-construction interest separately. From the year of possession, claim one-fifth of the total pre-construction interest annually for five years.
- If you are under the new tax regime: Do not claim home loan interest deduction on your self-occupied property. It is not available. For let-out properties it remains deductible.
- If you have a joint loan: Ensure both co-owners are also co-owners in the property documents. File ITR individually and claim your proportionate interest.
- If your house property loss exceeds Rs. 2,00,000 after set-off: Report the remaining loss in Schedule HP of your ITR. It will carry forward automatically to the next 8 years.
Section 22 is one of the most impactful tax provisions for homeowners. A Rs. 2,00,000 interest deduction saves Rs. 60,000 annually for a taxpayer in the 30% slab. Over a 20-year loan, that is Rs. 12,00,000 in cumulative tax savings from this one deduction. Know your property type, maintain your interest certificate, and claim correctly.
