When individual taxpayers file their annual income tax returns, many claim a deduction on the interest paid for their home loan.
However, the rules vary depending on whether the property is self-occupied or rented out (let-out). The income tax treatment for home loan interest is different for these two cases.
As the income tax return filing season begins for the financial year 2025 (assessment year 2025-26), taxpayers want to understand how much tax they can save by paying home loan interest on a self-occupied property compared to a let-out property.
The government encourages property investment by offering tax benefits on home loans under the Income Tax Act, 1961.
Home loan repayments include both principal and interest payments, and tax deductions are available under two sections: Section 80C and Section 24(b).
Under Section 80C, you can claim a deduction on the principal repayment up to Rs 1,50,000.
Under Section 24(b), you can claim a deduction on the interest paid, up to Rs 2,00,000 annually.
For a self-occupied house, the maximum interest deduction allowed under Section 24(b) is Rs 2 lakh per year, as long as the house was constructed or acquired within the last 5 years.
Interest Deductions for Let-Out and Partially Let-Out Properties
Sometimes, a property is let out for part of the year and self-occupied for the rest. In such cases, for tax purposes, the property is considered let-out for the entire year,
and income is calculated accordingly. However, the rent received is only counted for the actual let-out period.
For let-out properties, there is no limit on the home loan interest deduction under Section 24(b). This applies to interest paid on loans taken for purchase, construction, repair, or renovation of the property.
In contrast, for self-occupied properties, the interest deduction limit is Rs 2 lakh (this limit was lower before: Rs 1 lakh or Rs 30,000 prior to recent amendments).
Important Update: Income Tax Return Filing Deadline for FY 2025
The Central Board of Direct Taxes (CBDT) has extended the deadline to file income tax returns for the financial year 2025. Taxpayers now have until September 15, 2025, to submit their returns.
