In Part 1, we discussed the chargeability of income from house property, ownership and the types of house properties covered under the Income Tax Act, 2025. In Part 2, we explained the determination of Annual Value under Section 21.

Once the Net Annual Value (NAV) has been determined, the next step is to claim the deductions specifically permitted under the Act. Unlike business income, only the deductions expressly provided in the Act are allowable while computing income from house property.

The provisions relating to deductions are contained in Section 22 of the Income Tax Act, 2025 (corresponding to Section 24 of the Income-tax Act, 1961). This section allows a standard deduction and a deduction for interest on borrowed capital, subject to the prescribed conditions.

Provisions Covered in this Article

Income Tax Act, 2025	Corresponding Provision under the Income-tax Act, 1961	Subject Matter
Section 22(1)	Section 24(a)	Standard Deduction
Section 22(2)	Section 24(b)	Interest on Borrowed Capital

Comparison of Deductions from Income from House Property

Particulars	Income-tax Act, 1961 (Section 24)	Income Tax Act, 2025 (Section 22)
Standard Deduction	30% of the Annual Value.	30% of the Annual Value as determined under Section 21.
Interest on Borrowed Capital	Deduction for interest payable on capital borrowed for acquisition, construction, repair, renewal or reconstruction of the property.	Deduction for interest payable on capital borrowed for acquisition, construction, repair, renewal or reconstruction of the property.
Pre-construction Interest	Interest for the period prior to acquisition or construction is allowable in five equal annual instalments, beginning from the year of acquisition or completion.	Same provision retained. Interest for the pre-acquisition/pre-construction period is deductible in five equal annual instalments from the relevant tax year and the following four tax years.
Maximum Deduction – Self-Occupied Property	Rs. 2,00,000 where prescribed conditions are satisfied; otherwise Rs. 30,000.	Rs. 2,00,000 where the property is acquired or constructed with borrowed capital and completed within five years and the prescribed certificate is furnished; otherwise Rs. 30,000.
Certificate of Interest	Certificate from the lender specifying the amount of interest is mandatory for claiming the enhanced deduction.	Certificate from the lender specifying the interest payable is required for claiming deduction under the prescribed conditions.
Subsequent Loan (Refinancing)	Interest on a subsequent loan taken for repayment of the original housing loan is also eligible, subject to conditions.	Interest on a subsequent loan used for repayment of the original borrowed capital continues to qualify, subject to the provisions of Section 22(4).
Overall Ceiling	Aggregate deduction under the relevant provisos cannot exceed Rs. 2,00,000.	Aggregate deduction under Section 22(2) in respect of properties referred to in Section 21(6) shall not exceed Rs. 2,00,000.
Interest Payable Outside India	No specific standalone provision in Section 24; governed by other provisions of the Act.	Interest payable outside India is not allowable if tax has not been deducted where required or if there is no agent in India as provided under Sections 306 and Chapter XIX-B.

Key Changes in the Income Tax Act, 2025

Aspect	Position under the Income Tax Act, 2025
Drafting Style	Simplified and reorganised for better readability.
Cross References	Updated to refer to the new section numbers (e.g., Section 21 instead of Section 23).
Monetary Limits	No change in the deduction limits (Rs. 2,00,000 / Rs. 30,000).
Pre-construction Interest	No substantive change.
Standard Deduction	Continues to be 30% of Annual Value.
Refinancing Loan	Provision retained.
Interest Payable Outside India	Expressly incorporated in Section 22(6) with reference to TDS compliance.

Note: The Income Tax Act, 2025 primarily reorganises and simplifies the provisions relating to deductions from income from house property. Most substantive provisions of the erstwhile Section 24 of the Income-tax Act, 1961 have been retained with updated section references and drafting.

Deductions Allowed from Income from House Property

After determining the Net Annual Value, only the following deductions are generally allowable under Section 22:

1. Standard Deduction.
2. Interest on Borrowed Capital.

No other deduction is admissible unless specifically provided under the Act.

Standard Deduction

One of the most beneficial features of house property taxation is the standard deduction.

Under Section 22(1) of the Income Tax Act, 2025 (corresponding to Section 24(a) of the Income-tax Act, 1961), a deduction equal to 30% of the Net Annual Value is allowed.

This deduction is available irrespective of the actual expenditure incurred by the owner on repairs or maintenance.

The purpose of this deduction is to provide a simplified allowance towards routine expenses relating to the property.

Important Points

• Deduction is 30% of Net Annual Value, not Gross Annual Value.
• No bills or supporting documents are required.
• Available even if actual repair expenditure is lower.
• If the Net Annual Value is Nil, no standard deduction is available.

Interest on Borrowed Capital

The second major deduction relates to interest payable on borrowed capital.

Under Section 22(2) of the Income Tax Act, 2025 (corresponding to Section 24(b) of the Income-tax Act, 1961), deduction is available in respect of interest payable on capital borrowed for:

• Purchase of house property.
• Construction of house property.
• Repair of house property.
• Renewal of house property.
• Reconstruction of house property.

Only the interest component is deductible. Repayment of the principal amount is not covered under this section.

Pre-Construction Interest

Interest paid during the period prior to completion of construction is known as pre-construction interest.

Such interest is not allowed as a deduction in one lump sum.

Instead, it is generally allowed in five equal annual instalments, commencing from the year in which the construction is completed or the property is acquired, subject to the provisions of the Act.

Maximum Deduction

The amount of deduction for interest depends upon the nature of the property and fulfilment of the prescribed conditions.

For certain self-occupied properties, the Act prescribes a maximum limit, whereas in the case of let-out properties, the deduction is governed by the provisions of the Act and the restrictions applicable while setting off losses under other heads of income.

Taxpayers should carefully examine the applicable limits before claiming the deduction.

Conditions for Claiming Interest

To claim deduction for interest on borrowed capital:

• Capital must actually be borrowed.
• Borrowing should be for an eligible purpose.
• Interest should be payable on such borrowing.
• The taxpayer should retain the lender’s interest certificate and other supporting documents.

Computation of Income from House Property

The computation may be summarised as follows:

Particulars	Amount
Gross Annual Value	XXXX
Less: Municipal Taxes Paid	XXXX
Net Annual Value (NAV)	XXXX
Less: Standard Deduction (30%)	XXXX
Less: Interest on Borrowed Capital	XXXX
Income from House Property	XXXX

Practical Illustrations

Illustration 1 – Let-Out Property

Particulars	Amount (Rs.)
Gross Annual Value	6,00,000
Municipal Taxes Paid	30,000
Net Annual Value	5,70,000
Standard Deduction (30%)	1,71,000
Interest on Housing Loan	2,20,000
Income from House Property	1,79,000

Illustration 2 – Self-Occupied Property

Annual Value = Nil

Net Annual Value = Nil

Standard Deduction = Nil

Interest on borrowed capital shall be allowable subject to the conditions and limits prescribed under the Act.

Illustration 3 – Pre-Construction Interest

A taxpayer pays interest during the construction period.

The total pre-construction interest shall generally be allowed in five equal annual instalments beginning from the year in which construction is completed or acquisition takes place, subject to the statutory provisions.

Common Mistakes

• Claiming 30% deduction on Gross Annual Value instead of Net Annual Value.
• Claiming principal repayment as interest.
• Claiming pre-construction interest in one year.
• Not obtaining an interest certificate from the lender.
• Claiming deductions not permitted under Section 22.

Practical Tips

✔ Maintain housing loan statements every year.

✔ Preserve municipal tax receipts.

✔ Verify completion dates before claiming pre-construction interest.

✔ Compute Net Annual Value correctly before applying deductions.

✔ Keep ownership documents readily available.

Key Takeaways

• Only deductions specifically permitted under Section 22 are allowable.
• Standard deduction is 30% of Net Annual Value.
• Interest on borrowed capital is deductible subject to statutory conditions.
• Principal repayment is not deductible under this section.
• Pre-construction interest is generally allowed in five equal instalments.
• Correct computation helps avoid notices and incorrect claims.

Frequently Asked Questions

1. Can I claim actual repair expenses instead of the 30% standard deduction?

No. The Act allows only the statutory standard deduction under Section 22(1).

2. Is principal repayment deductible under Section 22?

No. Only interest on borrowed capital is covered by Section 22(2).

3. Can I claim interest on a loan taken for repairs?

Yes, subject to the conditions prescribed in the Act.

4. Is pre-construction interest deductible?

Yes. It is generally allowed in five equal annual instalments after completion or acquisition.

5. Is the standard deduction available for self-occupied property?

Where the Net Annual Value is Nil, the standard deduction is not available.

Related Article on Simple Income Tax

1. Income Tax Act 2025 Explained

2. Salary Provisions Under Income Tax Act 2025 – Part 1

3. Salary Allowances & Perquisites Under Income Tax Act 2025

4. Salary TDS & Deductions Under Income Tax Act 2025

5. Salary Computation Under Income Tax Act 2025

6. TDS Under the Income Tax Act, 2025 (Part 1): Basics, Applicability, Compliance & Transition from the Income-tax Act, 1961

7. TDS Under the Income Tax Act, 2025 (Part 2): TDS on Salary, Interest, Dividends, Winnings & Other Common Payments

8. TDS Under the Income Tax Act, 2025 (Part 3) : TDS on Business Payments

9. TDS Under the Income Tax Act, 2025 (Part 4): TDS Returns, Forms, Certificates, Interest, Penalties, Practical Issues & Complete Compliance Guide

10. Income from House Property Under the Income Tax Act, 2025 (Part 1): Chargeability, Ownership and Types of House Property

11. Income from House Property Under the Income Tax Act, 2025 (Part 2): Annual Value, Self-Occupied & Let-Out Property

Always refer official website of Income Tax Department

About the Author

G BHARDWAJ

Administrator

G Bhardwaj is an independent Income Tax researcher and author with a keen interest in Indian taxation, CBDT developments and matters relating to Central Government employees. The articles published on this website are based on research, analysis of official sources and publicly available information.

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