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  7. Income from Rented House? Interest Deduction, Tax Exemption & Rebate

Interest Deduction On Rented House Property | Income Tax Return

Updated on: 07 Feb, 2025 12:53 PM

Constructing/ purchasing a new house is not an easy task. A common man exhausts all his life’s savings & also takes a home loan to make this dream a reality. Hence, to help the citizens, Income Tax Act provides a deduction of interest paid on home loans under Section 24. This article explores the various aspects of section 24 and its applicability.

Contents

Budget 2025 Updates

Relief for house owners: Finance Minister Nirmala Sitharaman provided relief to homeowners by allowing two self-occupied properties to be considered exempt from tax, up from the previous limit of one.

These changes will be effective from 1 April 2025, i.e., for FY 2025-26.

What is Section 24 of the Income Tax Act?

Section 24 of the Income Tax Act allows deductions for the interest paid on home loans and is also called ‘Deduction on Income from House Property’.

There are 2 types of deductions available under section 24.

  • Standard Deduction Under Section 24(a) - This exemption is allowed to every taxpayer, where 30% of the Net Annual Value (NAV) can be claimed as a standard deduction from the income.
  • Interest on Loan Under Section 24(b) - If you have taken a home loan for purchasing, constructing, or renovating a house, the interest you pay on the principal amount is eligible for a tax deduction.
  • For self-occupied properties, you can claim a tax deduction of up to ₹2 lakh on the interest paid.
  • For loans taken before purchase or construction is completed, you can still claim the interest. The interest paid before completion can be deducted in five equal installments starting from the year the house is purchased or the construction is completed. However, this benefit applies only to loans for purchase or construction, not for renovation.
  • For renovation or reconstruction loans, you can claim the tax deduction only after the renovation is completed.

To claim this deduction, you have to calculate the interest separately from the principal repayment. The exemption applies to the total annual interest amount, regardless of whether you have made the actual payment to the bank or financial institution.

What are the Exceptions Under Section 24?

  • If the house is not self-occupied, you can claim a tax deduction on the entire interest amount without any upper limit.
  • If you live in another city for work or business and reside in a different property (self-owned or rented), the tax deduction on interest is capped at ₹2 lakh.
  • Brokerage or commission paid for arranging the loan or tenant is not eligible for tax deduction.
  • To claim the maximum deduction on loan interest, you must complete the house purchase or construction within three years of taking the loan. If not, the deduction limit is reduced from ₹2 lakh to ₹30,000.
  • An interest certificate from the lender is required to claim the deduction.

Conditions to Claim Interest Deduction Under Section 24(b)

  • You must have an interest certificate to prove interest payable towards your home loan.
  • Your home loan must have been sanctioned after 1st April 1999 to build or construct a house property.
  • Your house must be acquired or constructed within 5 years from the year in which the loan was disbursed.

However, your interest deduction can be limited to only Rs.30,000 in the below cases -

  • The loan is borrowed before 1st April 1999 for the purchase, construction, reconstruction, or repairs of a house
  • The loan is borrowed on or after 1st April 1999 for the repairs or reconstruction of the house property.
  • If the acquisition or construction is not completed within 5 years from the end of the FY in which the loan was taken.

Computation of Income from House Property

Here’s an example for the calculation of Income from House Property Under Section 24 -

Rajesh takes a home loan of Rs.4 lakhs and pays an annual interest of Rs.2 lakhs on it. The interest paid is Rs.1.5 lakhs when this property was under construction. He has put this property on rent and earns a rental income of Rs.30,000 per month from it. He also pays a municipal tax of Rs.10,000 for this property. Based on this information, given below is the calculation of Rajesh’s income from house property based on two factors, rental income and self occupied property.

You can calculate the total income Rajesh earns using the formula below -

Income from House Property = (Net Annual Value - Standard Deduction) - (home loan interest + pre-construction interest).

Particulars of Calculations Self-Occupied Property Rental Property
Gross Annual Value Nil Rs. 3,60,000
Less: Municipal taxes Nil Rs. 10,000
Net Annual Value (NAV) Nil Rs. 3,50,000
Deduction under section 24:
Less: (a)Standard deduction @30% of NAV NA Rs. 1,05,000
Less: (b)Interest on Borrowed Capital Rs. 2,00,000 Rs. 2,00,000
Less : Pre-construction interest Rs. 30,000 Rs. 30,000
Overall Interest is Restricted up to 2,00,000 2,30,000
Income/(Loss) from House Property (2,00,000) 15,000

Applicability of Deductions Under Section 24

The table given below shows the tax deductions under section 24 of the Income Tax Act -

Application Deduction Available
A rented property purchased with a home loan Full home loan interest paid
Rented property purchased with own money 30% Standard deduction on NAV
Self occupied property purchased with housing loan Maximum deduction of Rs.2 lakh on home loan paid in a financial year.

Frequently Asked Questions

Q- Can I mention interest amount exceeding Rs. 2,00,000?

If the house is self-occupied, then you can’t mention an amount exceeding Rs.2 lac. In the case of rented property, it is possible to mention an amount more than Rs.2 lac as excess loss will be allowed to be carried forward.

Q- What if my property is self-occupied & not letout?

As discussed above, for self-occupied property maximum amount of deduction is Rs.2 lac. Hence, it is not possible to mention an amount exceeding Rs.2 lac.

Q- I mentioned 'income from rented property' as 'other income' in my ITR. What can be the possible consequences?

As per tax laws, an individual is required to report all sources of income and file ITR using the correct form applicable to him. If he files it using the wrong form, then his filed return will be treated as 'defective', and he will be asked to file a revised ITR using the correct form.

Q- I have 2 houses out of which one is lying vacant and the other is occupied by my family. what tax benefits can I claim on house lying vacant?

You can avail of tax benefits on the second house by claiming it as self-occupied. The notional rent on the second house will be added to your income and will be taxed as per the applicable tax slab. However, you will be allowed to deduct the interest on a home loan from the notional rent.

Q- Can I claim a tax deduction on a self-leased home?

An employee who receives HRA can claim an exemption in respect of rental payments under section 10(13A) of the Income-tax Act, 1961. To avail of the HRA exemption, one must pay rent actually for the rented property.

However, an individual can claim HRA even if it is not a part of a salary under section 80GG of the Act. rental payments under section 80GG of the Act, provided certain conditions are fulfilled.

Q- Can anyone claim the maintenance of a rented house as a loss while computing income tax (while claiming income from the second house)?

No, the assessee cannot claim maintenance of a rented house as a loss while computing income tax.

Q- Can I show that 50% of our rent was received in my wife's name to save income tax? I have completed the house loan, and the house is in both of our names. My wife is a housewife.

Yes, the house is in both of your names, so you must show it in both accounts. It will help you manage your taxes as well. Take care that the amount is also received partly in your and your wife’s account. The TDS must be deducted accordingly.

Q- How will an income from a house property be taxable under the Income Tax Act, 1961, in case the house property is let out but has been vacant for whole/part of the year?

Where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy, the actual rent received or receivable by the owner in respect thereof is less than the reasonable expected rent than the amount received as rent shall be considered as Gross Annual Value.

Q- My parents own a rental property. They put the house under my name, but they collect the rent all to themselves. What is the impact of this situation on my tax return and how do I get out?

Rental income from property is charged to tax under the head Income from house property in the hands of the owner of the property. The person should be an owner of property while receiving rent, only when it can be shown under the House property head.

Now you are the owner of the house.. Rental income and Expenses must be declared on your income tax return.

Q- Do I have to pay income tax if I am renting my house in India for paying guests?

If you are running a paying guest accommodation in your house, the income from the same, if considered legally, should be declared as your rental income.

Q- Can a commercial property be deemed to be self-occupied under the India's Income-tax Act?

As such, the Income Tax Act does not differentiate between residential and commercial property. Only Property is defined in the Act. A property is residential' or 'commercial' by virtue of its usage. When a commercial property is let out, its rent is taxed under the head Income from House Property since there is no other head of income tax where this rent can be reported and taxed. Self-occupied (commercial or residential) property is also taxed under the house property head.

Q- How does the sharing of rental income by the joint owners of a property work in India?

When a property is jointly owned by two or more persons, each one of them is called a co-owner. Each co-owner can avail their proportion of rent under the house property head and can claim the standard deduction on it.

Q- Can I claim HRA as well as interest on a housing loan for the period of staying in a rented house for 9 months and a loan taken for a self-occupied house for 3 months in the financial year? Both properties are in the same city.

Yes, you can claim an income tax exemption on both the house rent allowance (HRA) and repayment of the home loan. If you are living in a house on rent and servicing a home loan on another property - even if both the properties are located in the same city -you can claim tax benefits for both.

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Kamal Murarka

Kamal Murarka
Director - Tax Research & Operations

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Kamal Murarka, a Chartered Accountant, is the Director- Tax Research & Operations at Tax2win. He has been with the company since its inception, contributing his expertise in national and international tax assignments. He is also a recognized speaker on tax-related topics, representing Tax2win at various industry forums. His deep knowledge and strategic insights have been crucial in shaping Tax2win’s approach to tax research, operations, and client solutions, driving the company’s continued success.