Key Takeaways
- "Income from house property" is a separate head of income in the ITR. It applies to all building owners, whether the property is self-occupied, rented out, or vacant.
- Self-occupied property: Gross Annual Value is nil. The only deduction available is home loan interest under Section 24(b), capped at Rs 2,00,000 per year.
- Let-out property: Income = Gross Annual Value minus municipal taxes minus 30% standard deduction minus home loan interest (no cap on interest for let-out property).
- You can treat up to two properties as self-occupied. Any additional vacant property is deemed let-out and must be taxed on notional rent.
- Loss from house property can be set off against other income up to Rs 2,00,000 per year. Excess loss is carried forward for 8 years and set off only against future house property income.
- Under the new tax regime, Section 24(b) interest deduction for self-occupied property is not available, but interest on let-out property is still deductible.
Income from house property is one of the five heads of income under the Income Tax Act. If you own a residential flat, a commercial office, a shop, or a plot with a building on it, the rental income (or the notional rent, if it is vacant) is taxed under this head. The only exception is a property used for your own business or profession, which is taxed under "profits and gains of business."
Many salaried employees with a home loan think Section 24(b) interest deduction is all there is to house property taxation. It is not. The computation starts with the Annual Value, runs through municipal taxes and a 30% standard deduction, and ends with the interest claim. Getting any step wrong can lead to a mismatch with AIS data or a missed loss set-off.
This guide covers the full computation for self-occupied, let-out, and deemed let-out property, with a worked example and ITR filing instructions for AY 2026-27.
Looking for expert help with income from house property computation and Schedule HP for AY 2026-27? The team at Tax Garden helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Types of House Property
1. Self-Occupied Property (SOP)
A property you use for your own residence. You can treat up to two properties as self-occupied. For self-occupied property:
- Gross Annual Value = Nil
- Municipal taxes deduction = not applicable (since GAV is nil)
- Section 24(a) standard deduction = not applicable
- Section 24(b) home loan interest = deductible, capped at Rs 2,00,000 per year
The result is usually a loss (zero income minus the interest paid), which you can set off against salary or other income.
2. Let-Out Property (LOP)
A property you have rented to a tenant. The full computation applies:
- Gross Annual Value = higher of actual rent received and the expected rent (municipal value or fair market rent, whichever is higher)
- Municipal taxes actually paid by you during the year are deducted
- Net Annual Value = GAV minus municipal taxes
- Section 24(a) standard deduction = 30% of NAV (automatic, no bills required)
- Section 24(b) home loan interest = fully deductible (no cap for let-out property)
3. Deemed Let-Out Property
If you own more than two house properties and choose to treat two as self-occupied, every additional property is treated as deemed let-out, even if it sits vacant the entire year. You must declare notional rent (expected rent based on fair market value or municipal rateable value) and pay tax on it.
The computation for deemed let-out property is the same as for let-out property: GAV (notional rent), minus municipal taxes, minus 30% standard deduction, minus home loan interest.
Step-by-Step Computation
Step 1: Determine Gross Annual Value (GAV)
For self-occupied property: GAV = Nil (no further calculation needed for Steps 2 and 3).
For let-out property:
The GAV is the higher of:
- (a) Actual rent received or receivable during the year
- (b) Expected rent (the higher of municipal rateable value and fair rent of similar properties in the locality)
However, if the property was vacant for part of the year and the actual rent received is less than the expected rent because of the vacancy, the actual rent becomes the GAV.
For deemed let-out property: GAV = expected rent (fair market value or municipal rateable value, whichever is higher). There is no actual rent to compare against.
Step 2: Deduct Municipal Taxes
Subtract municipal taxes (property tax, house tax, water tax) actually paid by you during the financial year. Taxes due but not paid are not deductible.
Net Annual Value (NAV) = GAV minus municipal taxes paid
Step 3: Apply Section 24 Deductions
Two deductions are available from the NAV:
Section 24(a): Standard deduction of 30%
A flat 30% of NAV is allowed as a deduction. You do not need to show any repair, maintenance, or insurance bills. It is automatic.
This deduction is available only when NAV is positive (i.e., for let-out or deemed let-out property). For self-occupied property where GAV is nil, there is no NAV to apply 30% on.
Section 24(b): Interest on home loan
| Property type | Interest deduction limit |
|---|---|
| Self-occupied | Rs 2,00,000 per year (if loan taken for purchase or construction completed within 5 years from the end of the FY in which the loan was taken; otherwise Rs 30,000) |
| Let-out | No upper limit (entire interest is deductible) |
| Deemed let-out | No upper limit |
Pre-construction interest: If you paid interest during the period between borrowing the loan and completing construction, that total pre-construction interest is allowed in five equal annual instalments starting from the year of completion. This applies to both self-occupied and let-out property.
For a detailed breakdown of Section 24(b) rules, joint loan treatment, and pre-construction interest calculations, see our Section 24(b) guide.
Income from house property = NAV minus Section 24(a) minus Section 24(b)
If the result is negative, it is a loss from house property.
Worked Example
Priya (age 38, salaried) owns two properties in FY 2025-26:
Property A: Self-occupied flat in Hyderabad
- Home loan outstanding: Rs 30,00,000 at 8.5% interest
- Interest paid during the year: Rs 2,45,000
- Municipal tax: Rs 8,000 (paid)
Property B: Let-out apartment in Bangalore
- Monthly rent received: Rs 30,000 (total Rs 3,60,000 for 12 months)
- Municipal rateable value: Rs 3,00,000 per year
- Municipal tax paid: Rs 15,000
- Home loan interest paid: Rs 1,80,000
Property A (Self-Occupied)
| Item | Amount |
|---|---|
| Gross Annual Value | Nil |
| Less: Municipal taxes | Not applicable |
| Net Annual Value | Nil |
| Less: 30% standard deduction | Not applicable |
| Less: Section 24(b) interest (capped at Rs 2,00,000) | Rs 2,00,000 |
| Income from Property A | (Rs 2,00,000) (loss) |
Note: Priya paid Rs 2,45,000 in interest, but only Rs 2,00,000 is deductible for self-occupied property. The remaining Rs 45,000 is not claimable.
Property B (Let-Out)
| Item | Amount |
|---|---|
| Actual rent received | Rs 3,60,000 |
| Expected rent (municipal rateable value) | Rs 3,00,000 |
| Gross Annual Value (higher of the two) | Rs 3,60,000 |
| Less: Municipal taxes paid | Rs 15,000 |
| Net Annual Value | Rs 3,45,000 |
| Less: 30% standard deduction [Section 24(a)] | Rs 1,03,500 |
| Less: Home loan interest [Section 24(b)] | Rs 1,80,000 |
| Income from Property B | Rs 61,500 |
Total House Property Income
| Amount | |
|---|---|
| Property A | (Rs 2,00,000) |
| Property B | Rs 61,500 |
| Net income from house property | (Rs 1,38,500) (loss) |
This Rs 1,38,500 loss can be set off against Priya's salary income, reducing her taxable income for the year.
Loss from House Property: Set-Off and Carry Forward
House property losses follow specific set-off and carry-forward rules:
Under the old tax regime:
- Loss from house property can be set off against income from any other head (salary, business income, capital gains, other sources) up to Rs 2,00,000 per year.
- Any loss exceeding Rs 2,00,000 is carried forward for 8 assessment years and can be set off only against future house property income (not against salary or other heads).
- Unlike most other losses, house property loss can be carried forward even if the return was not filed before the due date.
Under the new tax regime:
- Loss from house property cannot be set off against any other head of income. It can only be set off against house property income from another property.
- Unabsorbed loss is carried forward for 8 years, adjustable only against future house property income.
TDS on Rent: What Landlords Should Know
If you are a landlord receiving rent, your tenant may be required to deduct TDS before paying you:
Section 194-I (business/professional tenants):
- Applicable when the tenant is a business entity liable for tax audit under Section 44AB
- Threshold: annual rent exceeding Rs 6,00,000 (increased from Rs 2,40,000 with effect from April 1, 2025)
- TDS rate: 10% on rent for land, building, or furniture
Section 194-IB (individual/HUF tenants):
- Applicable when the tenant is an individual or HUF not liable for tax audit
- Threshold: monthly rent exceeding Rs 50,000
- TDS rate: 2% (reduced from 5% with effect from October 1, 2024)
- Filed via Form 26QC (challan-cum-statement)
As a landlord, verify that TDS deducted by your tenant reflects correctly in your Form 26AS and Annual Information Statement (AIS) on incometax.gov.in before filing your ITR. If there is a mismatch, contact your tenant to file or correct the TDS return.
How to Fill Schedule HP in the ITR
Schedule HP appears in ITR-1 (for up to one house property besides the self-occupied one), ITR-2, and ITR-3.
For each property, you need to provide:
- Property type: Self-occupied, let-out, or deemed let-out
- Address of the property
- Name and PAN of the tenant (for let-out property where TDS is applicable)
- Name and PAN of co-owner (if jointly owned, along with the percentage share)
- Annual Value / Gross Annual Value
- Municipal taxes paid
- Net Annual Value (auto-calculated in the e-filing utility)
- 30% standard deduction (auto-calculated)
- Interest payable on borrowed capital (Section 24(b) amount)
- Income from house property (auto-calculated after deductions)
If you own the property jointly, declare only your share of the rental income and claim deductions in proportion to your ownership percentage.
New Tax Regime Considerations
Under the new tax regime (Section 115BAC):
- Self-occupied property: Section 24(b) interest deduction is not available. The income from self-occupied property is simply nil (no loss can be generated).
- Let-out property: The full computation applies. Rent is taxable, 30% standard deduction is available, and Section 24(b) interest deduction for the let-out property is available with no cap.
- Loss set-off: Any loss from house property under the new regime cannot be set off against salary or other income. It can only be set off against other house property income or carried forward for 8 years.
For most salaried employees with one self-occupied house and a large home loan, this means the Rs 2 lakh loss set-off benefit is lost in the new regime. Factor this into your regime comparison.
Transition to Income Tax Act 2025
From Tax Year 2026-27 (income earned from April 1, 2026), the Income Tax Act 2025 applies. The house property provisions are restructured as follows:
| Old Act (1961) | New Act (2025) | What it covers |
|---|---|---|
| Sections 22-27 | Sections 20-22 | Charge, annual value, deductions |
| Section 23 (Annual Value) | Section 21 | Determination of annual value |
| Section 24 (Deductions) | Section 22 | 30% standard deduction + interest on borrowed capital |
The substantive rules are unchanged: the same 30% standard deduction, the same Rs 2 lakh cap on self-occupied property interest, the same two-property self-occupied limit. Only the section numbers have changed.
For AY 2026-27 returns (FY 2025-26 income, filed in 2026), the ITR forms still reference the old section numbers.
Tax Garden Can Help
Computing house property income correctly requires reconciling rental receipts, municipal tax payments, home loan interest certificates, co-owner splits, and pre-construction interest schedules. Getting it wrong triggers a mismatch with AIS and Form 26AS data that can lead to a defective return notice.
Tax Garden's tax compliance services handle the full Schedule HP computation, loss set-off optimisation, and regime comparison for property owners. See also our guides on Section 24(b) home loan interest and set-off and carry-forward of losses.
Looking for expert help with house property income computation rental income ITR Schedule HP filing? The team at Tax Garden helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Frequently Asked Questions
I own one flat and live in it. Do I need to report anything under house property?
If you have a home loan, yes. The self-occupied property has nil annual value, but you can claim up to Rs 2,00,000 in home loan interest as a loss under house property (old regime only). This loss reduces your total taxable income. Report it in Schedule HP of your ITR.
I own three flats and live in one. How are the other two taxed?
You can declare up to two properties as self-occupied (with nil annual value). The third property is deemed let-out, and you must declare notional rent as income even if it is vacant. Most taxpayers choose the property with the highest notional rent as the second self-occupied property to minimise tax.
Is the 30% standard deduction available for self-occupied property?
No. The 30% standard deduction under Section 24(a) applies only to the Net Annual Value. For self-occupied property, the annual value is nil, so there is no NAV to apply the deduction on.
Can I claim home loan interest deduction in the new tax regime?
For self-occupied property, no. For let-out or deemed let-out property, yes. The interest deduction on let-out property continues to be available under the new tax regime with no upper limit.
What happens if my house property loss exceeds Rs 2 lakh in a year?
Under the old regime, you set off up to Rs 2,00,000 against other income (salary, business, etc.) in the current year. The excess loss is carried forward for up to 8 assessment years, but it can be set off only against future house property income, not against salary or other heads.
My tenant is an individual paying Rs 40,000 per month. Does he need to deduct TDS?
No. Under Section 194-IB, TDS by individual/HUF tenants is required only when monthly rent exceeds Rs 50,000. At Rs 40,000 per month, no TDS obligation arises for the tenant.
Has the Section 194-I TDS threshold changed recently?
Yes. From April 1, 2025, the threshold for TDS on rent under Section 194-I was increased from Rs 2,40,000 to Rs 6,00,000 per year. This applies to business or professional tenants liable for tax audit.
Sources
This guide is verified against incometax.gov.in (Income Tax Department portal, Schedule HP instructions for AY 2026-27 and house property income guidance for salaried individuals), the Income Tax Act 1961 (Sections 22 to 27), the Income Tax Act 2025 (Sections 20 to 22), CBDT notifications on TDS threshold changes (Section 194-I increase to Rs 6 lakh from FY 2025-26, Section 194-IB rate reduction to 2% from October 2024), and confirmatory coverage from ClearTax (Income from house property and Section 24 guides), Bajaj Finserv (deemed let-out property), Tax2Win (house property income and loss set-off), TaxGuru (FAQs on house property under Income Tax Act 2025), and BankBazaar (Section 80D and loss from house property). All thresholds, deduction limits, and TDS rates reflect the amounts applicable for FY 2025-26 (AY 2026-27).
