Section 24(b) Caps Self-Occupied Home Loan Interest Deduction at Rs 2 Lakh, and Only in the Old Regime

Nearly every home-loan borrower in India assumes the interest they pay is fully deductible. It is not. Section 24(b) of the Income-tax Act 1961 caps the interest deduction on a self-occupied house at Rs 2,00,000 per financial year, and that benefit is available only in the old tax regime. Under the default new regime carved out by Section 115BAC, the self-occupied interest deduction is switched off entirely from Assessment Year 2024-25 onwards.

That single distinction changes the maths on whether a home loan actually saves you tax. A borrower paying Rs 2,80,000 of interest in FY 2025-26 can shelter only Rs 2,00,000 of it, and only if they consciously opt out of the new regime. This tip walks through exactly what Section 24(b) permits, a worked example on a Rs 15,00,000 salary, and the mistakes that surface most often in Income Tax Department scrutiny.

What the Section Says

Section 24 of the Income-tax Act 1961 allows two deductions from the annual value of a house property before it is taxed under the head "Income from House Property". Section 24(a) gives a flat standard deduction of 30% of the Net Annual Value, and Section 24(b) allows a deduction for interest payable on capital borrowed to acquire, construct, repair, renew or reconstruct the property. The full statutory text is published on indiacode.nic.in and summarised on the Income Tax Department's individual and business help portal.

The ceiling depends on how the property is used. For a self-occupied property, Section 24(b) caps the interest deduction at Rs 2,00,000 in a financial year. For a let-out property, interest is deductible without any upper limit. However, a separate restriction bites: the net loss under "Income from House Property" that you can set off against other income heads (such as salary) in the same year is capped at Rs 2,00,000 per assessment year, and any balance is carried forward for up to 8 assessment years under Section 71B.

The table below sets out the position for FY 2025-26.

Two further conditions apply to the self-occupied Rs 2,00,000 figure. First, the deduction drops to Rs 30,000 if the loan was taken before 1 April 1999, or if the loan was not used for acquisition or construction (for example, a loan for repairs). Second, for a loan taken to construct or buy, the construction or acquisition must be completed within 5 years from the end of the financial year in which the loan was taken, failing which the ceiling again falls to Rs 30,000.

Pre-construction interest is a commonly missed benefit. Interest paid during the years before the property is completed is aggregated and allowed as a deduction in 5 equal annual instalments, starting from the financial year in which construction is completed. This pre-construction interest still counts towards the same Rs 2,00,000 self-occupied ceiling, so it does not create extra headroom. You can model the interest component of your own loan on the Oquilia home loan EMI calculator and see the annual interest split.

Worked Example

Consider Meera, a salaried employee with a gross salary of Rs 15,00,000 in FY 2025-26 (Assessment Year 2026-27). She lives in a flat she owns, on which she pays Rs 2,80,000 of home-loan interest and Rs 1,50,000 of principal in the year. Because it is self-occupied, her Section 24(b) interest deduction is restricted to Rs 2,00,000; the remaining Rs 80,000 of interest is simply lost. She also invests enough to use the full Section 80C limit of Rs 1,50,000, which includes the principal repayment.

Under the old regime, her computation is as follows.

Without the Section 24(b) deduction, her net taxable income would be Rs 13,00,000 and her tax (with cess) would be Rs 2,10,600. The Rs 2,00,000 interest deduction therefore saves her Rs 62,400 in tax, reflecting her 30% marginal slab plus 4% cess (Rs 2,00,000 x 31.2% = Rs 62,400). You can reproduce this side by side on the old vs new regime calculator.

Now suppose Meera had instead let out the same flat for a rent of Rs 30,000 per month, paying municipal taxes of Rs 20,000 and the same Rs 5,00,000 of annual interest on a larger loan. Her house-property computation would be:

Here the loss is Rs 2,62,000, but she can set off only Rs 2,00,000 against her salary in FY 2025-26. The remaining Rs 62,000 is carried forward under Section 71B to be set off against future house-property income, for up to 8 assessment years. The mechanics of carry-forward are explained in the Oquilia glossary entry on carry-forward losses, and you can compute the full house-property head using the income from house property calculator.

Common Mistakes

The following errors recur in defective-return notices and scrutiny assessments, and each carries a real cost if the return is picked up.

Claiming the deduction in the new regime. The single most frequent slip in AY 2026-27 is claiming self-occupied interest while filing under the default new regime. Section 115BAC disallows it, and the system will disallow the Rs 2,00,000 automatically, often triggering a demand. If you want the deduction, you must positively opt for the old regime; salaried taxpayers do this in the ITR, and business or professional taxpayers must file Form 10-IEA. Check which regime suits you before filing using the income tax calculator.

Deducting the whole interest on a self-occupied home. A borrower paying Rs 3,50,000 of interest cannot deduct all of it against a self-occupied flat; the ceiling is Rs 2,00,000, and the excess of Rs 1,50,000 gives no benefit. Some taxpayers wrongly enter the full figure and later receive an adjustment under Section 143(1).

Forgetting pre-construction interest. Interest paid during construction is not lost. It is claimable in 5 equal instalments from the year of completion, within the same Rs 2,00,000 cap. Taxpayers who bought under-construction flats in, say, FY 2022-23 and took possession in FY 2025-26 routinely forget to start this five-year claim.

Both co-owners over-claiming. Where a property is jointly owned and jointly borrowed, each co-owner can claim up to Rs 2,00,000 of self-occupied interest in the old regime, but only in proportion to their ownership and actual interest paid. A spouse who is neither a co-owner nor a co-borrower cannot claim anything. See the Oquilia glossary note on tax deduction for how allocation works.

Ignoring the let-out loss cap and carry-forward. Taxpayers with high-interest let-out properties often assume the entire loss reduces their salary in one year. It cannot; only Rs 2,00,000 is set off, and the rest must be carried forward within the same return to preserve the assessment year trail. If the carry-forward is not disclosed in the year the loss arises, the department can deny it later.

Confusing Section 24(b) with Section 80C. The principal portion of the EMI is deductible under Section 80C within the overall Rs 1,50,000 limit; the interest portion is deductible under Section 24(b). They are separate provisions with separate ceilings, and both are old-regime only. A first-time buyer of an affordable home (stamp duty value up to Rs 45,00,000, loan sanctioned between 1 April 2019 and 31 March 2022) could additionally claim Rs 1,50,000 under Section 80EEA; the related Section 80EE is covered by the Section 80EE calculator.

FAQ

Can I claim Section 24(b) interest in the new tax regime?

No, not for a self-occupied property. Section 115BAC disallows the self-occupied interest deduction in the default new regime from AY 2024-25. For a let-out property, interest under Section 24(b) can still be set off, but only against income from that house property, and no house-property loss can be set off against salary in the new regime.

What is the maximum home-loan interest deduction for a self-occupied house?

Rs 2,00,000 per financial year in the old regime, provided the loan was taken on or after 1 April 1999 for acquisition or construction and the property is completed within 5 years from the end of the year the loan was taken. Otherwise the cap is Rs 30,000.

Is interest on a let-out property fully deductible?

The interest itself has no upper limit under Section 24(b). However, the net loss from house property that you can set off against other income in a year is capped at Rs 2,00,000; the balance is carried forward for up to 8 assessment years under Section 71B.

How does pre-construction interest work?

Interest paid before the year of completion is added up and allowed in 5 equal annual instalments beginning in the financial year construction is completed. It is subject to the same Rs 2,00,000 self-occupied ceiling, not over and above it.

Can both spouses claim Rs 2,00,000 each on the same loan?

Only if both are co-owners and co-borrowers and both actually pay the interest. In that case each can claim up to Rs 2,00,000 in the old regime, in proportion to their share, so a couple could jointly claim up to Rs 4,00,000. A spouse who is not on the loan or the title cannot claim.

Does the Rs 2,00,000 cap include Section 80C principal repayment?

No. The Rs 2,00,000 under Section 24(b) covers only interest. Principal repayment is a separate deduction under Section 80C, within its own overall Rs 1,50,000 ceiling, and both are available only in the old regime.

What happens if my property is completed after 5 years?

If construction or acquisition is not completed within 5 years from the end of the financial year in which the loan was taken, the self-occupied interest deduction under Section 24(b) is restricted to Rs 30,000 instead of Rs 2,00,000.

This article is for general information based on the Income-tax Act 1961 as applicable to FY 2025-26 (AY 2026-27) and is not individual tax advice. Verify current provisions on incometax.gov.in and indiacode.nic.in before filing.