Income from House Property - Sections 20 to 25 | Annual Value, Deductions u/s 22

Key Takeaways

• Income from house property is taxable under Section 20 of the Income Tax Act, 2025 (previously Section 22) on the basis of annual value, not actual rent received.
• Only two deductions are allowed under Section 22 (previously Section 24): standard deduction of 30% and interest on borrowed capital.
• Self-occupied property has NIL annual value, with home loan interest deduction capped at Rs. 2,00,000 (old regime) per annum.
• Under the new tax regime, the interest deduction on self-occupied property is limited to Rs. 2,00,000 only if the property was acquired/constructed before 01.04.2020.
• A maximum of two properties can be claimed as self-occupied from Tax Year 2019-20 onwards.

Chargeability - Section 20 of the Income Tax Act, 2025 (previously Section 22)

Income from house property is chargeable to tax under Section 20 if:

1. The property consists of buildings or lands appurtenant thereto
2. The assessee is the owner (or deemed owner under Section 24, previously Section 27) of the property
3. The property is not used for business or profession carried on by the owner

Deemed ownership (Section 24 of the Income Tax Act, 2025, previously Section 27): Includes transferee under a transfer otherwise than for adequate consideration, holder of an impartable estate, member of a co-operative society/company allotted the property, person in possession under Part Performance (Section 53A of Transfer of Property Act), and person holding lease rights for 12+ years.

Determination of Annual Value - Section 21 of the Income Tax Act, 2025 (previously Section 23)

Let-Out Property - Section 21(1)

Annual Value is the highest of:

| Step | Component | |------|-----------| | Step 1 | Determine Gross Annual Value (GAV) = Higher of (a) Municipal Rateable Value or (b) Fair Rent, but subject to Standard Rent cap | | Step 2 | Compare GAV with Actual Rent Received/Receivable | | Step 3 | Higher of Step 1 and Step 2 = GAV (if vacancy, reduce actual rent for vacancy period) | | Step 4 | Deduct Municipal Taxes actually paid by owner during the year | | Step 5 | Result = Net Annual Value (NAV) |

Self-Occupied Property - Section 21(2)

NAV is taken as NIL. No standard deduction is available. Only interest on borrowed capital is allowed (with limits).

Deemed Let-Out Property - Section 21(4)

If an assessee owns more than two house properties and all are self-occupied, only two can be treated as self-occupied. The remaining are treated as deemed let-out and taxed on notional rental value.

Deductions under Section 22 of the Income Tax Act, 2025 (previously Section 24)

| Deduction | Section | Let-Out Property | Self-Occupied Property | |-----------|---------|-----------------|----------------------| | Standard Deduction | 22(a) | 30% of NAV (flat, no proof needed) | Not available (NAV is NIL) | | Interest on Borrowed Capital | 22(b) | Full amount, no limit | Rs. 2,00,000 max (if acquired/constructed within 5 years from end of FY of borrowing) | | Pre-construction Interest | 22(b) proviso | Deductible in 5 equal instalments from year of completion | Same, included within Rs. 2,00,000 limit |

Important: If acquisition/construction is not completed within 5 years, the self-occupied interest deduction is capped at Rs. 30,000 instead of Rs. 2,00,000.

Landmark Judgement

Worked Example

Mrs. Kavitha owns two properties in Tax Year 2025-26:

Property A (Self-Occupied in Bangalore):

• Municipal value: Rs. 2,40,000
• Home loan taken in April 2022: Rs. 45,00,000 at 8.5% p.a.
• Interest paid during Tax Year 2025-26: Rs. 3,82,500
• Pre-construction interest (Tax Years 2022-23 and 2023-24 total): Rs. 5,60,000
• Construction completed: March 2024
• Municipal tax paid: Rs. 15,000

Property B (Let-Out in Chennai):

• Municipal value: Rs. 1,80,000; Fair rent: Rs. 2,40,000
• Actual rent received: Rs. 2,00,000 (Rs. 20,000 x 10 months, 2 months vacant)
• Municipal tax paid: Rs. 12,000
• Home loan interest: Rs. 1,50,000

Computation:

Property A (Self-Occupied)

| Particulars | Amount (Rs.) | |------------|-------------| | Gross Annual Value | NIL | | Less: Municipal taxes | - | | Net Annual Value (NAV) | NIL | | Less: Standard Deduction u/s 22(a) | NIL | | Less: Interest u/s 22(b) - Current year | (3,82,500) | | Less: Pre-construction interest (5,60,000 / 5) | (1,12,000) | | Total interest claim | (4,94,500) | | Restricted to maximum | (2,00,000) |

Property B (Let-Out)

| Particulars | Amount (Rs.) | |------------|-------------| | GAV: Higher of municipal value (1,80,000) and fair rent (2,40,000) = 2,40,000. Compare with actual rent for occupied period (2,00,000). Higher = 2,40,000. But due to vacancy, actual rent 2,00,000 is lower - adopt 2,00,000 | 2,00,000 | | Less: Municipal tax paid by owner | (12,000) | | NAV | 1,88,000 | | Less: 30% Standard Deduction u/s 22(a) | (56,400) | | Less: Interest u/s 22(b) - no limit for let-out | (1,50,000) | | Income from Property B | (18,400) |

Total Income from House Property = (2,00,000) + (18,400) = Loss of Rs. (2,18,400)

Note: Loss from house property can be set off against other heads up to Rs. 2,00,000 in the current year under Section 109 (previously Section 71). Balance Rs. 18,400 is carried forward for 8 years under Section 109 (previously Section 71B).

Expert Tip

Section Interconnect

• Also read: Chapter 8 - Set Off and Carry Forward of Losses (house property loss set-off is capped at Rs. 2,00,000 per year under Section 109)
• Also read: Chapter 9 - Deductions under Chapter VIII (home loan principal repayment qualifies under Section 123 + Schedule XV)
• Also read: Chapter 6 - Capital Gains (sale of house property attracts capital gains; exemptions under Sections 82 and 86 available)

Frequently Asked Questions

Q1: If I have a property but it is lying vacant throughout the year, is it still taxable?

Yes. Under Section 21(1) of the Income Tax Act, 2025, even a vacant property that is not self-occupied is treated as a deemed let-out property. The annual value will be determined based on a reasonable expected rent (considering municipal value and fair rent). However, if it is your only or second property and you treat it as self-occupied, the annual value is NIL under Section 21(2).

Q2: Can I claim home loan interest for an under-construction property?

Interest paid during the pre-construction period (from the date of borrowing to the date of completion or March 31 of the year immediately preceding the year of completion, whichever is earlier) is aggregated and allowed as deduction in five equal annual instalments starting from the year of completion. This is called pre-construction interest and is available under Section 22(b) of the Income Tax Act, 2025.

Q3: Is rental income from a commercial property also taxed under this head?

Yes. Rental income from any building (residential or commercial) owned by the assessee is taxable under "Income from House Property" under Section 20 of the Income Tax Act, 2025 unless the property is used for the assessee's own business or profession. Even rent from shops, offices, and warehouses falls under this head.

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