When filing their annual income tax returns, many individual taxpayers claim a deduction on home loan interest. However, the rules differ depending on whether the property is self-occupied or rented out (let-out). The income tax treatment for home loan interest is separate for these two cases.
As the income tax return filing season begins for the financial year 2025 (assessment year 2025-26), taxpayers want to know how much tax they can save by paying home loan interest on a self-occupied property versus a let-out property.
Tax Benefits on Home Loans
To encourage property investment, the government offers tax benefits on home loans under the Income Tax Act, 1961.
Home loan repayments include both the principal amount and interest payments, and tax exemptions are available under two sections: Section 80C and Section 24(b).
Under Section 80C, individuals can claim a deduction on the principal repayment up to Rs 1,50,000.
Under Section 24(b), a deduction can be claimed 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, provided the house is constructed or acquired within the last 5 years.
Interest Deduction for Let-Out and Partially Let-Out Properties
Sometimes, a property may be let out for part of the year and self-occupied for the rest. In such cases, for tax purposes, the property is treated as let-out for the entire year,
and income is calculated accordingly. However, the actual rent received is only considered for the let-out period.
For let-out properties, there is no limit on the amount of home loan interest that can be claimed as a deduction under Section 24(b). This deduction covers interest paid on loans taken for purchase, construction, repair, or renovation of the property.
In contrast, for self-occupied properties, the interest deduction is limited to Rs 2 lakh (previously Rs 1 lakh or Rs 30,000 before the amendment).
Income Tax Return Filing Deadline for FY 2025
The Central Board of Direct Taxes (CBDT) has extended the deadline for filing income tax returns for the financial year 2025. Taxpayers now have until September 15, 2025, to file their returns.