Income from House Property Under the Income-tax Act, 2025 — Complete Guide
Quick Answer
Income from house property under the Income-tax Act, 2025 (Act 30 of 2025, assented 21 August 2025, commencing 1 April 2026) is computed as Gross Annual Value minus municipal taxes paid minus 30 per cent standard deduction on NAV minus interest on borrowed capital. For tax year 2026-27 onwards, up to two houses can be treated as self-occupied (nil annual value). The Rs 2 lakh home loan interest cap applies only under the old regime; under the new regime, self-occupied interest deduction and set-off of house property losses against other heads are not allowed.
Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026
For middle-income Indian households, the house property head is often the single biggest source of tax savings, thanks to the Rs 2 lakh home loan interest deduction and the option to treat up to two houses as self-occupied. The rewrite of the direct tax code into the Income-tax Act, 2025 has preserved almost all of the computational DNA of the 1961 Act under this head, but it has also introduced important new-regime restrictions that every home-loan borrower must understand. This guide walks you through GAV and NAV computation, municipal tax rules, the 30 per cent standard deduction, home loan interest under both regimes, the two-house self-occupation rule, joint ownership, deemed let-out properties, pre-construction interest, unrealised rent and loss set-off — all with worked numerical examples for tax year 2026-27.
Definition — Income from house property: Under the Income-tax Act, 2025, the annual value of a building or land appurtenant thereto owned by the assessee and not used for the purpose of any business or profession carried on by the assessee is chargeable to tax under the head “Income from house property”. The assessee need not be the legal owner in every case — deemed ownership rules continue from the 1961 Act.
Step 1: Compute Gross Annual Value (GAV) — the higher of expected rent (fair rent or municipal value, capped by standard rent) and actual rent received or receivable. Step 2: Subtract municipal taxes actually paid by the owner during the tax year to arrive at Net Annual Value (NAV). Step 3: Apply a 30 per cent standard deduction on NAV (covers repairs and collection charges). Step 4: Deduct interest on borrowed capital used for acquisition, construction, repair or renovation. The result is Income from house property, which can be positive (rental profit) or negative (home-loan loss). For a self-occupied property, GAV is nil and only interest (capped at Rs 2 lakh under the old regime) is deductible. Up to two houses can be treated as self-occupied; any extra non-let-out houses are deemed let-out.
Table of Contents
- Charging scheme and scope
- Gross Annual Value (GAV)
- Municipal taxes and NAV
- 30% standard deduction
- Home loan interest — old vs new regime
- Self-occupied property — two-house rule
- Let-out and deemed let-out property
- Joint ownership and co-ownership
- Loss from house property — set-off and carry forward
- Unrealised rent and arrears
- Worked examples
- Related articles in the series
- Expert Insight
- Key Takeaways
- Frequently Asked Questions
1. Charging scheme and scope
Chapter IV of the Income-tax Act, 2025 retains the five-head structure. The house property head covers rental income from buildings (or buildings together with the land appurtenant thereto) that are owned by the assessee and not used by the assessee for carrying on business or profession. Three conditions must be satisfied:
- The property must consist of a building or land appurtenant to it. Vacant land alone is not charged here — it is taxed under “Income from Other Sources” or, if let on commercial lines, under PGBP.
- The assessee must be the owner or deemed owner. Deemed ownership rules cover transfers to a spouse without adequate consideration, transfers to a minor child not being a married daughter, holders of an impartible estate, members of housing co-operatives, and buyers in possession under Section 53A of the Transfer of Property Act.
- The property must not be used by the owner for the purpose of business or profession. If so used, the notional or actual rent is ignored and the property is taxed under PGBP.
The terminology change from “previous year” and “assessment year” to a single tax year runs through this head as well. The first tax year under the 2025 Act is tax year 2026-27 (1 April 2026 to 31 March 2027). Rental and deemed-rental income accruing from 1 April 2026 onwards is computed under the 2025 Act; anything earlier remains with the 1961 Act.
2. Gross Annual Value (GAV)
GAV is the sum for which the property might reasonably be expected to let from year to year. The computation has two competing numbers:
- Expected rent = higher of fair rent (market rent) or municipal value, but capped by standard rent where the property is subject to a Rent Control Act.
- Actual rent received or receivable in the tax year, net of unrealised rent meeting prescribed conditions.
GAV is the higher of the two. However, if the property was vacant for part or the whole of the year and, owing solely to such vacancy, actual rent is less than expected rent, the actual rent is taken as GAV. If the owner has voluntarily offered the property rent-free to a relative or left it unoccupied deliberately, this vacancy allowance is not available — the expected rent becomes GAV.
3. Municipal taxes and NAV
Net Annual Value (NAV) = GAV minus municipal taxes actually paid by the owner during the tax year. The key rules are:
- Deduction is on payment basis, not accrual basis. Unpaid arrears are not deductible until paid.
- Municipal taxes paid by the tenant are not deductible.
- Arrears paid during the tax year for an earlier period are deductible in the year of payment.
- Advance taxes paid relating to a future period are deductible in the year of payment.
- Interest, penalty or surcharge for delayed payment of municipal taxes is not deductible.
4. 30% standard deduction
A flat 30 per cent of NAV is allowed as standard deduction covering repairs, collection charges, society maintenance, insurance and all other running expenses of the property. This is a lump-sum deduction — no vouchers or actual expense records are required. The 30 per cent is available even if the actual expenditure on repairs and maintenance is less. Conversely, if the actual expenditure exceeds 30 per cent of NAV, the extra amount cannot be claimed. This deduction is available in both regimes under the 2025 Act.
5. Home loan interest — old vs new regime
Interest on capital borrowed for acquisition, construction, repair, renewal or reconstruction of the property is deductible from NAV. Under the 2025 Act, the rules divide neatly by property type and regime:
| Property type | Interest deduction under old regime | Interest deduction under new regime |
|---|---|---|
| Self-occupied house (up to 2 houses) | Up to Rs 2,00,000 per year if acquisition/construction loan; Rs 30,000 in other cases | Not allowed |
| Let-out or deemed let-out | No cap — entire interest deductible | No cap, but resulting loss cannot be set off against other heads |
| Pre-construction period interest | Deductible in 5 equal instalments from year of completion, within cap | Deductible only for let-out property, in 5 instalments |
For the acquisition or construction loan to qualify for the Rs 2 lakh cap on self-occupied property, the construction must be completed within 5 years from the end of the tax year in which the loan was taken. If not completed in time, the ceiling drops to Rs 30,000. A lender’s certificate specifying the interest paid or payable during the tax year, and the principal loan amount, is required for claiming the deduction.
6. Self-occupied property — two-house rule
Up to two residential houses that are occupied for the owner’s own residence can be treated as self-occupied. The annual value of such houses is taken as nil. This effectively means no rental income is attributed, but the owner can still claim home loan interest up to the aggregate cap of Rs 2 lakh across both houses (old regime). A house cannot be treated as self-occupied for any part of the year in which it was actually let out, but portions of the year can be self-occupied and the rest let out with proportionate computation.
Where the owner occupies a house for own residence and cannot actually reside in it because his employment or business requires him to reside elsewhere in a house not owned by him, the property is still treated as self-occupied (the “deemed self-occupation” rule from the 1961 Act continues under the 2025 Act).
7. Let-out and deemed let-out property
A property that is actually rented out during the tax year is a let-out property. The full GAV, NAV and deduction mechanism applies. If a person owns three or more residential houses and more than two are not let out, any additional houses beyond the two chosen as self-occupied are deemed let-out. The expected rent (fair rent or municipal value, capped by standard rent) is treated as GAV even though no rent is actually received.
For a commercial property (office, shop, warehouse) owned by an individual and let out, the income is charged under house property even though the property is commercial, because the head covers all buildings. Only commercial complexes run as a business (like service apartments, hotels and organised commercial letting with significant services) may be charged under PGBP instead — the test is whether letting is the primary business.
8. Joint ownership and co-ownership
If a property is owned by two or more persons in definite and ascertainable shares (typically spouses, or parent and child), each co-owner is separately assessed on his or her proportionate share. The 30 per cent standard deduction, municipal tax deduction, and home loan interest deduction are also apportioned. Each co-owner independently gets the right to treat the jointly-owned house as one of their two self-occupied properties. This can deliver significant benefit where a husband and wife are joint owners of two houses — effectively, the household can claim four Rs 2 lakh interest caps (two by each spouse) in the old regime, if both spouses are servicing the loans from their own funds.
9. Loss from house property — set-off and carry forward
When home loan interest exceeds the rental (or nil) annual value, the result is a loss under the house property head. The loss can be:
- Set off against income under other heads (salary, business, capital gains, other sources) in the same tax year — but only up to Rs 2 lakh and only under the old regime.
- Carried forward for up to 8 tax years and set off only against income from house property in those years. This carry forward is available in both regimes.
- Under the new regime, the Rs 2 lakh inter-head set-off is not allowed. The loss still becomes available for carry forward against future house-property income.
10. Unrealised rent and arrears
Unrealised rent is deductible from GAV if the tenancy is bona fide, the defaulting tenant has vacated or steps have been taken to vacate him, the tenant is not in occupation of any other property of the assessee, and the assessee has taken all reasonable steps to recover the rent. When such unrealised rent is later recovered, it is taxable as house property income in the year of recovery, after a 30 per cent deduction, even if the assessee is no longer the owner of the property at the time of recovery.
Arrears of rent received from a tenant in a later year are taxable as house property income in the year of receipt, after the 30 per cent standard deduction.
11. Worked examples
Rajesh owns a flat in Pune which he occupies himself. He took a home loan of Rs 60 lakh at 9 per cent, resulting in interest of Rs 5,20,000 during tax year 2026-27. Principal repaid in the year is Rs 2,80,000.
GAV = Nil (self-occupied)
Municipal taxes paid: Rs 0 (not relevant as GAV is nil)
NAV = Nil
30% standard deduction = Nil
Home loan interest deduction (old regime, capped) = Rs 2,00,000
Income from house property = (Rs 2,00,000) loss
Principal of Rs 2,80,000 is eligible under Section 80C (old regime), restricted to Rs 1,50,000 overall 80C cap.
Under the new regime, the same situation yields nil income from house property and no deduction for home loan interest or principal. Rajesh forgoes Rs 2 lakh of interest deduction and the 80C principal benefit if he uses the new regime.
Meera owns a flat in Hyderabad let out for Rs 45,000 per month. Municipal taxes of Rs 18,000 were paid by her during tax year 2026-27. Home loan interest for the year is Rs 3,80,000.
Actual rent (12 x 45,000) = Rs 5,40,000
Expected rent (fair rent assumed) = Rs 5,20,000
GAV = higher = Rs 5,40,000
Less: Municipal tax Rs 18,000
NAV = Rs 5,22,000
Less: 30% standard deduction = Rs 1,56,600
Less: Home loan interest = Rs 3,80,000
Income from house property = Rs (14,600) loss
Under the old regime, the loss can be set off against other heads up to Rs 2 lakh in the same year. Under the new regime, the loss cannot be set off against other heads, but can be carried forward up to 8 years against future house-property income.
Arun owns three flats: (a) in Chennai, self-occupied by him; (b) in Coimbatore, used by his parents rent-free; (c) in Bengaluru, let out for Rs 30,000 per month. He can choose two of (a), (b) and (c) as self-occupied. (c) is actually let out, so it is a let-out property. He chooses (a) and (b) as self-occupied. The two-house limit is satisfied.
If Arun had a fourth vacant flat in Kochi, that flat would be deemed let-out and its expected rent (based on municipal value and fair rent) would be taxed even though no rent is received. The Rs 18,000 municipal tax, 30 per cent deduction and any home loan interest on the Kochi flat would still be deductible from that deemed GAV.
12. Related articles in the series
- Salary Income under the Income-tax Act, 2025
- Profits and Gains of Business or Profession under the 2025 Act
- Capital Gains Tax under the 2025 Act
- Income from Other Sources under the 2025 Act
- Old vs New regime decision guide under the 2025 Act
- Home loan tax benefits under the 2025 Act
Expert Insight
CA V. Viswanathan: The single biggest planning point under this head in the 2025 Act is the regime choice for homeowners with a live home loan. I have seen clients lose Rs 60,000 of tax a year simply because they did not notice that the new regime does not allow the Rs 2 lakh interest deduction on self-occupied property. If you have a fresh home loan in EMI-heavy years — typically the first 7 to 10 years when interest dominates — the old regime almost always wins, sometimes by Rs 80,000 or more a year, because the Rs 2 lakh interest deduction combines with the Rs 1.5 lakh 80C principal deduction to deliver a Rs 3.5 lakh total shield. Once the loan is substantially repaid (principal-heavy EMIs), the new regime often becomes superior. Another pattern I see: clients forget that up to two houses can be self-occupied. Where parents live in one house and the taxpayer in another, both houses can be declared self-occupied even if only one is physically used as primary residence. Finally, joint ownership between spouses is genuinely powerful if both spouses have independent taxable income — each gets an independent Rs 2 lakh interest cap and an independent 80C claim, doubling the effective shield. Document the loan EMI flow from each spouse’s bank account to evidence this at assessment if questioned.
Key Takeaways
- Income-tax Act, 2025 received assent on 21 August 2025 and commences 1 April 2026; first tax year is 2026-27.
- House property income = GAV minus municipal taxes minus 30% standard deduction minus home loan interest.
- Up to two houses can be self-occupied (annual value nil); extra houses are deemed let-out.
- Rs 2 lakh home loan interest deduction on self-occupied property is available only under the old regime.
- For let-out property, there is no cap on interest deduction under either regime.
- Loss from house property can be set off against other heads up to Rs 2 lakh (old regime only).
- Unused loss can be carried forward 8 tax years under both regimes.
- Municipal taxes are deductible on payment basis, only by the owner.
- Joint ownership allows each co-owner to claim proportionate deductions and self-occupation.
- Pre-construction interest is deductible in 5 equal instalments from the year of completion.
Frequently Asked Questions
When does the Income-tax Act, 2025 start applying to house property income?
The Act (30 of 2025) received Presidential assent on 21 August 2025 and commences on 1 April 2026. Rental and deemed-rental income from 1 April 2026 onwards is computed under the 2025 Act, with the first tax year being 2026-27. Earlier rent remains with the repealed 1961 Act.
What is Gross Annual Value (GAV) under the 2025 Act?
GAV is the higher of expected rent (fair rent or municipal value, capped by standard rent) and actual rent received. If actual rent is less than expected rent solely due to vacancy, the actual rent is taken as GAV.
Is the standard 30% deduction still available under the 2025 Act?
Yes. A flat 30 per cent of Net Annual Value is deductible for repairs, collection and maintenance in both regimes. No documentation is required.
Can I claim home loan interest on a self-occupied house under the new regime?
No. The Rs 2 lakh deduction for home loan interest on self-occupied property is not allowed under the new regime. It is available only under the old regime, and the resulting loss can be set off up to Rs 2 lakh against other heads.
How many self-occupied houses are allowed under the 2025 Act?
Up to two residential houses can be treated as self-occupied. Their annual value is nil. Any additional non-let-out houses beyond two are deemed let-out.
What is deemed let-out property?
If you own more than two residential houses that are not actually let out, any house beyond the two chosen as self-occupied is treated as deemed let-out. Expected rent is taken as GAV even if no rent is received.
How is house property income computed for a let-out property?
GAV minus municipal taxes paid equals NAV. Minus 30 per cent standard deduction. Minus interest on borrowed capital (including pre-construction interest in 5 instalments). The result is the income under this head.
What is the treatment of municipal taxes?
Only municipal taxes actually paid by the owner during the tax year are deductible. Taxes paid by the tenant, or interest and penalty for late payment, are not deductible.
How is joint ownership of house property taxed?
Each co-owner is separately assessed on his or her proportionate share, with proportionate 30 per cent standard deduction and home loan interest. Each co-owner independently enjoys the two-house self-occupation limit.
Can loss from house property be set off against other income?
Yes, up to Rs 2 lakh in the same tax year under the old regime. Under the new regime, no inter-head set-off is allowed. Unused loss can be carried forward 8 tax years against future house-property income under both regimes.
Is pre-construction interest deductible under the 2025 Act?
Yes. Interest paid during construction is deductible in 5 equal annual instalments starting from the year of completion. For self-occupied property the overall Rs 2 lakh cap still applies (old regime). For let-out property there is no cap.
How is unrealised rent and recovery of arrears taxed?
Unrealised rent meeting prescribed conditions is deductible from GAV in the year of default. Recoveries of such unrealised rent or arrears are taxed in the year of recovery with a 30 per cent standard deduction, even if the property is no longer owned.
How is property used for own business treated?
Property used by the owner for own business or profession is not taxed under house property. It is treated as a business asset under PGBP, and its depreciation, repairs and loan interest are claimed as business expenses.
Is rent from a vacant plot taxable as house property income?
No. A vacant plot without a building is not house property. Rent from letting a plot is taxed under Other Sources, or under PGBP if letting land is the business.
For a personalised house property tax review for tax year 2026-27, contact our team at virtualauditor.in/contact-us or call +91 99622 60333.