Section 24(b) Home Loan Interest Deduction FY 2025-26: ₹2 Lakh Limit, Let-out and Pre-construction Rules

How it works

Interest on money borrowed to buy, build, repair or reconstruct a house is deductible from the income of that house under section 24(b) of the Income-tax Act 1961. Because a self-occupied house has nil annual value, the deduction creates a loss under the head house property, which you then set off against salary or business income. That is where the ₹2,00,000 limit bites.

For a self-occupied house the interest deduction is capped at ₹2,00,000 a year if the loan was taken on or after 1 April 1999 for purchase or construction, and the construction was completed within five years from the end of the financial year in which the loan was taken. If the five-year condition fails, or the loan is for repairs, the cap drops to ₹30,000. You may treat up to two houses as self-occupied.

For a let-out house the full interest is deductible against the rent, with no ceiling. But if that produces a loss, only ₹2,00,000 of the total house property loss can be set off against other heads in the same year. The excess is carried forward for eight assessment years and can only be set off against house property income in those years.

Interest paid during the construction period, from the loan date to the 31 March before completion, is not lost. It is added up and allowed in five equal instalments starting from the year the construction is completed. For a self-occupied house each instalment counts within the same ₹2,00,000 cap, so a large pre-construction pool often goes partly unused. Two further points trip up first-time claimants. The deduction is on accrual, so interest due for March but debited in April still belongs to FY 2025-26, and the bank certificate is prepared on that basis. And a loan from a friend, relative or employer qualifies just as a bank loan does, provided you can show the money was borrowed for the house and obtain an interest certificate from the lender.

What to do next

Download the provisional interest certificate from your lender for FY 2025-26. It splits the EMIs into interest and principal, which go to different places: interest to Schedule HP under section 24(b), principal to Schedule VI-A under 80C. If you and your spouse are co-owners and co-borrowers, each claims in the ownership ratio, which can double the family deduction to ₹4 lakh. If the house was completed this year, add up the interest from earlier years and start the five-instalment claim now. For a let-out house, enter the rent received, deduct municipal taxes paid and the 30% standard deduction, then the interest, and let the utility compute the loss and the ₹2 lakh set-off. Keep the possession letter or completion certificate, since the five-year condition and the pre-construction period both hinge on that date. An expert-assisted return handles the schedule and the carry-forward correctly.