Published 26 October 2026
Most borrowers know the figure of Rs 2 lakh. Fewer know that it applies only to a house the owner lives in, that it falls to Rs 30,000 if the house is not finished within five years, that it needs a certificate from the lender, and that it disappears altogether for a salaried person who files the return late. A let-out house has no cap on interest at all, but the loss it produces can reduce other income by only Rs 2 lakh a year. This guide sets out the interest deduction under both Acts: what interest counts, the caps, the certificate, the new regime, and how the claim is made.
Which Act governs which year
- Financial year 2025-26 (assessment year 2026-27) and earlier. The deduction is section 24(b) of the Income-tax Act, 1961, with its four provisos and two Explanations.
- Tax year 2026-27 onwards. The Income-tax Act, 2025 splits the same rules across section 22:
- s.22(1)(b) for current interest;
- s.22(1)(c) for interest before completion;
- s.22(2) and (5) for the caps;
- s.22(3) against double deduction;
- s.22(4) for the certificate; and
- s.22(6) for interest paid abroad.
- Interest for a year is deducted under the Act that governs that year. A loan taken in 2018 is claimed under section 24(b) for AY 2026-27 and under section 22 for tax year 2026-27.
What interest qualifies
Section 24(b) allows “the amount of any interest payable on such capital” where the property “has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital”. Section 22(1)(b) uses the same words. Four points follow from the text.
- Payable, not paid. The deduction is for interest payable for the year, so interest that has accrued but not been paid is still counted.
- Any lender. The lender need not be a bank. A loan from a relative or an employer qualifies, but the certificate described below is still needed for the higher cap on a self-occupied house.
- A loan to repay the first loan. Interest on a “new loan”, taken to repay the original borrowing, also counts. The Explanation to the third proviso defines that term, and section 22(4)(b) of the 2025 Act carries the same idea into the certificate.
- Interest paid abroad. Interest payable outside India is not deductible if tax has not been paid or deducted on it and there is no agent in India for the lender (s.25; s.22(6)).
Charges other than interest. “Interest” is defined in section 2(28A) of the 1961 Act to include “any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised”. Section 2(59) of the 2025 Act is the same in substance. In Mukul Rohatgi v ACIT (ITAT Delhi, 1 September 2026, ITA No. 3070/Del/2026, AY 2020-21), the assessee bought a commercial property in Noida for about Rs 58.30 crore with two overdraft facilities totalling Rs 60.50 crore, and let it to a bank. Of Rs 1,19,47,827 paid to the lender, Rs 72,25,774 was interest. The rest was protection insurance, processing fees and annual maintenance charges. The Assessing Officer allowed only the interest. The Tribunal held that, read with section 2(28A), the other charges were “interest” and deductible under section 24(b). It followed an earlier Mumbai decision, Peepul Tree Properties, which had allowed prepayment charges and a processing fee on refinancing. This guide has not found a High Court decision either way. The site’s article on penal interest and processing fees takes the opposite view without discussing section 2(28A). The order is on BharatTax case law.
Principal is not interest. Repayment of the principal is a separate deduction, under section 80C in the old regime. See Section 80C: What Qualifies and What to Keep.
No second deduction on sale. Interest claimed under section 24(b) cannot later be added to the cost of the house when it is sold. The proviso to section 48(ii), inserted by the Finance Act, 2023 from AY 2024-25, says the cost “shall not include the deductions claimed on the amount of interest under clause (b) of section 24 or under the provisions of Chapter VIA”. Section 72(3)(a) of the 2025 Act bars “the interest claimed as deduction under section 22(1)(b) or under Chapter VIII”. See Capital Gains on Selling Property.
A let-out house: no cap on interest
The caps in the provisos apply only to “property referred to in sub-section (2) of section 23”, the self-occupied house (s.21(6) in the 2025 Act). For a let-out house, or one valued as if let, the whole interest is deductible. If interest exceeds the annual value less 30 per cent, the result is a loss. That loss can be set off against other heads up to Rs 2,00,000 in a year, and the rest is carried forward for eight years against house property income only (s.71(3A) and 71B; s.109(1)(b) and 110). See House Property Income: Let-Out and Self-Occupied.
A self-occupied house: three limits
The provisos to section 24(b) set three limits on interest for a self-occupied house:
| Limit | 1961 Act | 2025 Act |
|---|---|---|
| Rs 30,000 | First proviso: the general cap | s.22(2)(b): “in any other case” |
| Rs 2,00,000 | Second proviso, if its conditions are met | s.22(2)(a), if its conditions are met |
| Rs 2,00,000 overall | Fourth proviso: first and second provisos together | s.22(5): all self-occupied houses together |
The conditions for Rs 2,00,000. Under the second and third provisos to section 24(b), all of these must hold:
- the house was acquired or constructed (not repaired or renewed) with the borrowed capital;
- the capital was borrowed on or after 1 April 1999;
- the acquisition or construction was completed within five years from the end of the financial year in which the capital was borrowed; and
- the owner furnishes the lender’s certificate.
Section 22(2)(a) of the 2025 Act keeps the purpose, the five-year test (counted from the end of the tax year of borrowing) and the certificate. It drops the 1 April 1999 date.
Everything else gets Rs 30,000. That covers:
- a loan for repairs, renewal or reconstruction;
- a house completed after the five years; and
- a claim made without the certificate.
The site’s article on the five-year completion deadline works through late completion.
The overall cap. The Rs 2,00,000 is an aggregate. It covers both self-occupied houses together, and a repair loan on top of a purchase loan does not add to it. Interest above the cap is lost; it is not carried forward.
Interest before completion. Interest for the years before the house was acquired or completed is deducted in five equal instalments from the year of completion. For a self-occupied house the instalment shares the same cap. See Interest Before Possession: The Pre-Construction Period.
The lender’s certificate
The third proviso to section 24(b) requires “a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan”. Section 22(4) of the 2025 Act requires the certificate to specify the interest payable on the capital borrowed and on any new loan taken to repay it. No form is prescribed for it. Banks and housing finance companies issue an annual interest certificate. A private lender has to write one.
The certificate is a condition of the Rs 2,00,000 limit only. Without it, the self-occupied claim falls to Rs 30,000. A let-out house is unaffected.
The new regime, and the late return
Section 115BAC(2)(i) of the 1961 Act takes away “clause (b) of section 24 [in respect of the property referred to in sub-section (2) of section 23]”. Section 202(2)(a)(v) of the 2025 Act takes away “section 22(1)(b), in respect of properties referred to in section 21(6)”. So in the new regime:
- a self-occupied house gets no interest deduction;
- a let-out house keeps its full interest deduction; and
- a house property loss cannot be set off against any other head (s.115BAC(2)(ii)(b); s.202(2)(b)(ii)).
The new regime is the default. A person without business income leaves it by choosing the old regime “along with the return of income to be furnished under sub-section (1) of section 139” (s.115BAC(6)(ii)), or the return under section 263(1) for tax year 2026-27 onwards (s.202(4)(b)). A belated return is filed under section 139(4) or section 263(4), not under sub-section (1). On the words of the provisions, a salaried person who files late is taxed in the new regime, and the self-occupied interest is lost for that year. The loss carry forward is protected differently: section 80 and section 121 do not require a timely return for a house property loss. See Old or New Regime: The Choice for Employees.
A worked example
A salaried individual lives in a flat bought in 2021 with a bank loan. Completion was within five years, and the bank’s certificate is in hand. For AY 2026-27, interest payable is Rs 2,60,000 and principal repaid is Rs 1,10,000. Salary after the standard deduction is Rs 18,00,000.
| Item | Old regime | New regime |
|---|---|---|
| Annual value of the self-occupied flat | nil | nil |
| Interest under section 24(b) | (2,00,000), capped | nil |
| Income from house property | (2,00,000) | nil |
| Set off against salary | allowed, within Rs 2,00,000 | not allowed |
| Interest above the cap | Rs 60,000 lost | all lost |
The figures are the same for tax year 2026-27 under section 22(2)(a) and section 109(1)(b). The principal of Rs 1,10,000 is claimed separately under section 80C in the old regime only.
Telling the employer
An employee in the old regime can have the employer take the interest into account in monthly TDS. Under the 1961 Act:
- section 192(2B) allows the employee to give the employer particulars of a loss under the head “Income from house property”; and
- rule 26C of the 1962 Rules requires the evidence of the claim in Form 12BB, which asks for the lender’s name, address and PAN.
Under the 2025 Act:
- section 392(4)(a)(iii) takes in the house property loss, which the employee reports in Form No. 122 under rule 204 of the 2026 Rules; and
- rule 205, Table serial number 3, asks for the “Name, address and Permanent Account Number of the lender” in Form No. 124.
Only the house property loss can reduce the tax deducted from salary (proviso to s.192(2B); s.392(4)(b)). See HRA Exemption and Form 12BB.
What to have ready
- The loan sanction letter and loan agreement, showing the purpose (purchase, construction or repair), the date the capital was borrowed and the borrowers.
- The lender’s interest certificate for the year, splitting interest from principal and, where relevant, pre-construction interest. For a private lender, a signed certificate with the lender’s PAN.
- The completion or possession date, to test the five-year condition.
- Whether each house was self-occupied or let in each month of the year.
- Charges paid to the lender (processing fee, insurance tied to the loan), with the lender’s statement, if they are to be claimed.
- The regime decision, and the due date for filing.
Reporting and corrections
- Reporting. Interest is reported against the house it relates to in the return’s house property schedule.
- Due date. The section 139(1) or section 263(1) date, which also decides whether the old regime can be chosen. See Belated and Revised Returns.
- Verification. See E-Verifying a Return.
- Corrections. A wrong claim is corrected by a revised return. A claim that reduces tax cannot be made by an updated return, which can only increase income.
In order
- Identify each loan and what it financed: purchase, construction, repair or a new loan to repay an earlier one.
- Get the lender’s certificate for the year.
- For a let-out house, deduct the whole interest payable, including charges that fall within the definition of interest.
- For self-occupied houses, apply Rs 2,00,000 if the conditions are met and Rs 30,000 if not, and keep the total within Rs 2,00,000.
- Choose the regime in a return filed by the due date; in the new regime, no interest is allowed on a self-occupied house and no loss goes against other heads.
- For TDS on salary to reflect the claim, give the employer the lender’s details in Form 12BB (Form No. 124 from tax year 2026-27).
The next guide, Interest Before Possession: The Pre-Construction Period, deals with interest paid while the house is still being built.