Income from House Property (TY 2026-27):
Home Loan Interest, Rental Income and New Regime Rules
From 1 April 2026, the Income Tax Act 2025 governs house property income. Understanding how the New Tax Regime alters home-loan interest deductions and loss set-offs is vital for property owners.
Owning residential or commercial real estate comes with distinct tax obligations under Indian tax law. Under the Income Tax Act 2025 (applicable for Tax Year 2026-27), the tax treatment of house property income varies significantly depending on whether the property is self-occupied, let-out or deemed let-out - and critically, whether you choose the New or Old Tax Regime.
New Tax Regime Rule for Self-Occupied Properties
Under the default New Tax Regime, no deduction is allowed for home-loan interest on a self-occupied property under Section 22(2) (erstwhile Section 24(b)). Furthermore, house property losses cannot be set off against salary or business income under the New Tax Regime.
1. Self-Occupied House Property Rules
For a self-occupied residential property used as your residence, the Gross Annual Value is legally deemed as Nil (Section 21 of the 2025 Act).
- Under Old Tax Regime: Interest on housing loan taken for acquisition or construction is deductible up to a maximum cap of ₹2,00,000 per financial year. This creates a net house property loss of up to ₹2,00,000, which can be set off against salary or other income heads.
- Under New Tax Regime: The Gross Annual Value is Nil and interest deduction is Nil. No loss can be claimed or carried forward.
2. Let-Out Property Computation
Where a house property is rented out, tax is computed on the net rental income after allowing statutory deductions:
| Computation Step | Statutory Provision | Applicable Formula / Rule |
|---|---|---|
| Gross Annual Value (GAV) | Section 21 | Higher of Reasonable Expected Rent or Actual Rent Received/Receivable |
| Less: Municipal Taxes Paid | Section 21(1) | Deductible only if actually paid by the owner during the tax year |
| Net Annual Value (NAV) | Section 21 | GAV minus Municipal Taxes Paid |
| Less: Statutory Standard Deduction | Section 22(1) | Flat 30% of NAV (allowed in both Old and New Regimes) |
| Less: Home Loan Interest | Section 22(2) | Actual interest paid (No ₹2L cap for let-out property in both regimes) |
3. Is a Second House Automatically Deemed Let-Out?
Under current income tax rules, a taxpayer can claim up to two residential houses as self-occupied with a Nil Gross Annual Value. If you own three or more residential properties, you may choose any two as self-occupied; all remaining properties will be treated as deemed let-out, requiring fair market rental income to be reported even if left vacant.
Key Takeaways for Property Owners
- If paying substantial home loan interest on a self-occupied property, compare whether opting for the Old Tax Regime delivers a higher overall tax refund.
- Always preserve municipal tax receipts; unpaid municipal tax cannot be deducted from rental income.
- For co-owned properties, rental income and loan interest deductions must be split strictly according to statutory ownership share specified in the title deed.
Need Assistance?
Anmol Aniket and Associates provides comprehensive personal tax advisory and property income structuring.
Whether managing self-occupied home loans, multiple rental properties or co-ownership tax reporting, our tax team ensures full compliance under the Income Tax Act 2025.
CONNECT WITH OUR TEAM