Income from House Property: Self-Occupied vs Let-Out (AY 2026-27)
Last verified: June 2026, against the Income Tax Act provisions and Budget 2025 announcements cited below. Figures apply to FY 2025-26 (AY 2026-27). This is general information, not personal tax advice.
Whether you own the home you live in or rent one out, the income tax law has a specific way to tax it under the head “Income from House Property”. Get it right and a let-out flat with a home loan can even produce a loss that cuts your overall tax. Here is how self-occupied and let-out properties are treated for AY 2026-27.
The standard computation
House property income is built up in steps:
- Gross Annual Value (GAV) — the rent the property earns or could earn.
- Less municipal taxes actually paid by the owner → Net Annual Value (NAV).
- Less 30% standard deduction on NAV (Section 24a) — a flat allowance for repairs, regardless of what you actually spent.
- Less home-loan interest (Section 24b).
The result is your taxable house-property income, or a loss.
Self-occupied property
If you live in the home, its GAV is taken as nil — there is no notional rent. Because there is no income, the 30% deduction does not apply. Under the old regime, you can still deduct home-loan interest up to ₹2,00,000 per year, which creates a loss that reduces other income. Under the new regime, interest on a self-occupied home gives no deduction, and a house-property loss cannot be set off against other income — an important difference when comparing regimes. See home-loan tax benefits.
Two self-occupied homes allowed
You can treat up to two house properties as self-occupied with nil GAV. There is no “deemed rent” on a second home you keep for your own use. If you own a third, one of them is treated as deemed let-out.
Let-out property
For a rented property, GAV is the actual rent (or reasonable expected rent if higher). After municipal taxes and the 30% deduction, you can deduct the full home-loan interest with no ₹2 lakh cap. This often produces a loss. However, the loss you can set off against other heads in the same year is capped at ₹2,00,000 (old regime); the rest carries forward for 8 years against future house-property income. Under the new regime, house-property loss cannot be set off against other heads at all. See set-off and carry-forward of losses.
Worked example (let-out, old regime)
Annual rent ₹3,60,000; municipal tax ₹10,000 → NAV ₹3,50,000. Less 30% (₹1,05,000) = ₹2,45,000. Less home-loan interest ₹4,00,000 → loss of ₹1,55,000, which (being under ₹2 lakh) can be set off against your salary this year.
FAQs
Is notional rent taxed on my empty second home?
No. You can designate up to two homes as self-occupied with nil value. Deemed rent applies only from the third property onward.
Can I claim the 30% deduction on actual repair bills higher than 30%?
No. The 30% standard deduction is fixed; you cannot claim actual expenses instead, even if you spent more.
Is home-loan interest deductible under the new regime?
For a self-occupied home, no. For a let-out property the interest is deductible against rent, but a resulting loss cannot be set off against other income under the new regime.
What about municipal tax I have not yet paid?
Only municipal taxes actually paid during the year are deductible, not amounts merely due.
