Sec 24(b) — the ₹2 lakh cap, the let-out trick, and what the new regime kills
Under Sec 24(b), home-loan interest on a self-occupied house is deductible up to ₹2 lakh a year in the old regime. For a let-out house all the interest is deductible, but the loss offsets other income only up to ₹2 lakh (Sec 71(3A)); the rest is carried forward eight years. The new regime gives no deduction for a self-occupied home.
The Sec 24(b) headline
Section 24(b) allows a deduction for interest paid on a loan taken for the purchase, construction, repair, renewal or reconstruction of a house property. The deduction is computed under "Income from House Property" — distinct from Sec 80C principal repayment, which is a Chapter VI-A deduction. The rules differ on three axes: (a) self-occupied vs let-out, (b) construction completed within 5 years of borrowing or not, and (c) old vs new regime.
Self-occupied — ₹2L cap
Up to two house properties can be designated as "self-occupied" under Sec 23(2). Interest deductible: actual interest paid, capped at ₹2,00,000. If construction wasn't completed within 5 financial years from the end of the FY in which the loan was taken, the cap collapses to ₹30,000.
Gross annual value of a self-occupied property is nil. Result: a flat negative income of up to ₹2L sits as "loss from house property" — directly reducing your salary / business / capital gain income within the Sec 71(3A) cap.
Let-out — no ceiling on interest, but ₹2L loss set-off cap
For a let-out (or "deemed let-out") property, the entire interest is deductible against rental income. There is no ₹2L cap on the deduction itself. The trick is in Sec 71(3A): the net "loss from house property" set-off against other heads is capped at ₹2,00,000 per FY. Loss above that is carried forward eight years against future house-property income only.
| Scenario | Interest deductible | Loss set off (this year) | Carry forward |
|---|---|---|---|
| Self-occ, completed in 5 yrs | Up to ₹2L | Up to ₹2L | Yes, 8 yrs, only vs HP income |
| Self-occ, NOT completed in 5 yrs | Up to ₹30K | Up to ₹30K | Same |
| Let-out, rent ₹3L, interest ₹6L | ₹6L | ₹2L cap (≈₹2L set off, rest c/f) | 8 yrs vs HP income |
Worked example — let-out flat
Rent received ₹3L; municipal tax ₹10K; 30% standard deduction under Sec 24(a) on Net Annual Value of ₹2.9L → ₹87K; interest paid ₹6L. House property income = 2.9L − 87K − 6L = −₹3.97L loss.
Set-off vs salary this year: capped at ₹2L (saves ~₹60K tax at 30% slab). Carried forward: ₹1.97L. Usable only against future house-property income in next 8 FYs.
New regime — Sec 24(b) for self-occupied is gone
The most painful change in the new regime: Sec 24(b) interest deduction for self-occupied property is NOT available. For let-out property, the deduction is allowed against rental income but the resulting loss cannot be set off against other heads — and cannot be carried forward.
For a homeowner sitting on a fresh home loan with ₹4-6L annual interest at 30% slab, the old regime delivers a ~₹60K tax benefit you lose by opting out.
The 5-year construction-completion rule
If construction takes more than 5 financial years from the end of the FY in which the loan was first taken, the ₹2L cap collapses to ₹30K. The 5-year clock starts even for under-construction property where you're paying interest from day 1.
Pre-construction interest: interest paid before the year in which possession is taken is aggregated and allowed in 5 equal instalments starting from the year of possession, in addition to the current-year interest (subject to the same ₹2L cap if self-occupied).
The deemed-let-out optimisation
If you own three or more properties and one is genuinely empty: declaring it as "let-out" with notional rent (a defensible market rate) lets you claim the full interest deduction, with a ₹2L loss set-off vs salary + 8-year carry-forward of excess loss. Most CAs miss this — they default to "self-occupied" and accept the ₹2L cap.
Joint home loan = double deduction
Husband + wife both on the property title and the loan: each can claim Sec 24(b) interest up to ₹2L individually, provided each is paying their share of EMI. With ₹4L+ of total annual interest, you essentially double the deduction. Make sure both spouses' EMI debits show in their respective bank accounts — substance over form.
Common mistakes
- Claiming Sec 24(b) for a plot loan. Pure land purchase loans don't qualify. Only loans for construction or acquisition of a house property.
- Claiming under new regime for self-occupied. Disallowed. Switch to old regime if the deduction is material.
- Confusing Sec 80C principal with Sec 24(b) interest. Principal goes under Sec 80C (₹1.5L overall cap). Interest goes under Sec 24(b) (its own ₹2L cap). Independent.
- Forgetting pre-construction interest. Aggregated pre-possession interest is claimable in 5 equal instalments from the year of possession.
- Setting off let-out loss without applying the ₹2L cap. Sec 71(3A) cap was inserted in 2017. Many ITR utilities still don't flag it — manual check needed.
Old vs new regime — when is Sec 24(b) worth keeping old?
Indicative breakeven for a salaried filer in the 30% slab:
- Self-occupied, interest ≥ ₹3L → old regime usually wins by ₹50K–₹80K (with ₹1.5L of Sec 80C + ₹50K of NPS Sec 80CCD(1B) + ₹25K of mediclaim).
- Self-occupied, interest < ₹2L and few other Sec 80C items → new regime wins.
- Let-out with persistent loss → old regime wins decisively because of the set-off + carry forward; new regime kills both.
Bottom line
Sec 24(b) is one of the most misunderstood deductions because the rules diverge sharply by occupation status, regime, and timing. Self-occupied: ₹2L cap, old regime only. Let-out: unlimited deduction but ₹2L set-off cap with 8-year carry-forward. New regime: brutal — self-occupied claim disappears entirely, let-out loss cannot leave house-property head. Pick the regime knowing this, and keep your possession-date proof and EMI schedule on file.