Income from House Property — Sections 20–25
Income from House Property
Complete guide to the head "Income from House Property" under the Income Tax Act 2025 — chargeability, annual value determination, let-out vs self-occupied properties, the two-house SOP benefit, deductions (30% standard + interest), arrears of rent, co-ownership, and who is an "owner" for tax purposes.
🔄 Replaces: Sections 22, 23, 24, 25A, 25AA, 25B, 26, 27 of the Income Tax Act 1961
📅 Effective: 1st April 2026 (Tax Year 2026-27 onwards)
Section 20 — Chargeability
Replaces Section 22 of the 1961 Act. The annual value of any building or land appurtenant thereto — owned by the assessee — is chargeable to income-tax under the head "Income from House Property".
- Rental income from residential flats/houses
- Rental income from commercial premises (shops, offices) — if owner does not use for own business
- Income from letting out of residential house — even if owner is a landlord-businessperson [Section 26(4)]
- Annual value of property let at concessional rent
- Portions occupied by assessee for own business or profession (profits of which are chargeable to tax) [Section 20(2)]
- Property let as stock-in-trade not let out — nil annual value for 2 years from completion [Section 21(5)]
- Self-occupied properties — annual value = nil [Section 21(6)]
Section 21 — Determination of Annual Value
Replaces Section 23 of the 1961 Act. The annual value is the higher of the expected rent (fair market rent) and actual rent received — subject to specific adjustments.
Section 21(1) — Basic Rule: Higher of Two
(a) Reasonable Expected Rent (Municipal Value / Fair Rent — whichever is higher, capped at Standard Rent if applicable)
(b) Actual Rent Received or Receivable
Key Adjustments to Annual Value
| Sub-sec | Situation | Annual Value |
|---|---|---|
| 21(1) | Property let out — no vacancy, no unrealised rent issues | Higher of fair rent and actual rent received |
| 21(2) | Property was vacant for part/whole of the year and actual rent received is less than fair rent due to vacancy | Actual rent received (vacancy relief — fair rent does not override) |
| 21(3) | Municipal taxes (property tax, service tax) actually paid during the year | Annual value is reduced by municipal taxes actually paid (not on accrual basis) |
| 21(4) | Unrealised rent (rent that cannot be realised from tenant) | Not included in actual rent — subject to prescribed rules |
| 21(5) | Property held as stock-in-trade (developer/builder) and not let at all during the year | Nil for 2 years from end of financial year in which completion certificate is obtained |
| 21(6) & (7) | Self-occupied property — owner occupies for own residence OR cannot occupy due to any reason (employment elsewhere, etc.) | Nil — for up to 2 houses chosen by the assessee |
Self-Occupied Property (SOP) — The Two-House Benefit
Under the 1961 Act (Section 23), only one self-occupied house could have nil annual value. The 2025 Act (Section 21(7)(a)) allows two houses to be treated as self-occupied simultaneously — a significant benefit for people owning two homes.
Conditions for SOP Nil Annual Value [Section 21(6) & (7)]
- Owner occupies it for own residence
- Owner cannot occupy it due to employment/business/profession elsewhere
- Up to 2 houses can be designated as SOP
- Each co-owner individually entitled to the benefit [Section 24(2)]
- House is actually let during any time of the tax year
- Owner derives any other benefit from the house
- More than 2 houses claimed as SOP
Step-by-Step Computation
= Higher of Fair Rent & Actual Rent [Sec 21(1)]
(Vacancy relief if applicable [Sec 21(2)])
Net Annual Value (NAV)
= GAV − Municipal Taxes Paid [Sec 21(3)]
Less: Standard Deduction [Sec 22(1)(a)]
= 30% of NAV
Less: Home Loan Interest [Sec 22(1)(b)]
= Actual interest (no cap for let-out)
= Income from House Property
Less: Standard Deduction
= 30% of NIL = NIL
Less: Home Loan Interest [Sec 22(1)(b)]
= Max ₹2,00,000 (if conditions met)
= Max ₹30,000 (otherwise)
= Income = Negative (Loss)
(Set off against other income up to ₹2L per year)
Section 22 — Deductions from House Property Income
Replaces Section 24 of the 1961 Act. Only two deductions are allowed — no actual maintenance, repair, insurance, water charges etc. are separately allowed (the 30% standard deduction covers everything).
Section 22(1)(a) — 30% Standard Deduction
Not applicable to SOP: Since SOP has NAV = nil, 30% of nil = nil. No standard deduction benefit for self-occupied property.
Section 22(1)(b) — Home Loan Interest Deduction
Interest on capital borrowed for acquisition, construction, repair, renewal, or reconstruction of the property is deductible. The rules differ significantly between let-out and self-occupied:
| Property Type | Interest Limit | Conditions |
|---|---|---|
| Let-out property | No cap — full actual interest | Full interest on home loan for acquisition/construction allowed. No upper limit. |
| Self-occupied (SOP) — ₹2L limit | ₹2,00,000 | Loan for acquisition or construction AND construction completed within 5 years from end of tax year of borrowing AND assessee furnishes interest certificate from lender [Section 22(2)(a)] |
| SOP — ₹30K limit (other cases) | ₹30,000 | All other cases — loan for repair/renovation, or construction not completed within 5 years [Section 22(2)(b)] |
The aggregate interest deduction for all self-occupied properties together cannot exceed ₹2,00,000 in a tax year. Even if an assessee has 2 SOPs each with a ₹2L limit home loan, the combined deduction is capped at ₹2L.
Section 22(1)(c) — Pre-Construction Period Interest
Interest paid on home loan during the period before the year of acquisition/construction (the pre-construction period) is not lost — it is allowed as a deduction in 5 equal instalments starting from the year of acquisition/construction.
Annual deduction = Total pre-construction interest ÷ 5
(For each of 5 years starting from year of possession/completion)
Section 22(3): Any pre-construction interest already claimed as a deduction under any other provision of the Act must be excluded from this computation to avoid double deduction.
Section 22(6) — Interest Payable Outside India
Section 23 — Arrears of Rent & Unrealised Rent Recovered Later
Replaces Sections 25A and 25AA of the 1961 Act. Where previously unrealised rent is subsequently realised, or arrears of rent are received later:
| Provision | Rule |
|---|---|
| Taxability [Section 23(1)–(2)] | Any arrears of rent or unrealised rent subsequently realised from a tenant is treated as income from house property in the year of actual receipt or realisation — even if the assessee is no longer the owner of the property in that year |
| Deduction [Section 23(3)] | A flat 30% of the arrears/unrealised rent received is allowed as deduction — in place of any standard deduction or other expenses. No further deduction is available. |
Section 24 — Co-owned Properties & Section 25 — Who is an "Owner"
Section 24 — Co-Ownership
Where a property is co-owned with definite and ascertainable shares, each co-owner is assessed separately on their proportionate share — they are not assessed as an association of persons. Each co-owner's share of income is included in their individual total income.
Each co-owner is individually entitled to the self-occupied property nil annual value benefit under Section 21(6) — as if each were a separate individual owner. This means if a husband and wife jointly own a home they live in, both get the SOP benefit.
Section 25 — Extended Definition of "Owner"
Replaces Section 27 of the 1961 Act. "Owner" for house property purposes is not just the registered title holder — it includes:
| Clause | Who is Deemed Owner | Implication |
|---|---|---|
| (a) | Individual who transfers property to spouse (not under separation agreement) or minor child (not married daughter) without adequate consideration | Transferor is deemed owner — prevents clubbing evasion through gifts to family |
| (b) | Holder of an impartible estate | Deemed individual owner of all properties in the estate |
| (c) | Member of co-operative society / company / AOP to whom a building is allotted or leased under house building scheme | Flat buyer in a co-operative housing society is the owner even before formal conveyance |
| (d) | Person in part-performance of a contract under Section 53A of Transfer of Property Act — allowed to take or retain possession | Property buyer who has paid and taken possession under an agreement to sell (even before formal registration) is deemed owner |
| (e) | Person who acquires rights in a building through sale, exchange, or long-term lease ≥ 12 years, or through co-operative society/company membership that enables enjoyment of the property | Long-term lease (12+ years) creates deemed ownership for tax purposes |
Practical Q&A
| Question | Answer |
|---|---|
| I own 3 flats. I live in 2 and the 3rd is empty (not rented). How are all 3 taxed? | 2 flats you designate as SOP — annual value = nil. The 3rd flat is treated as deemed let-out at fair rent even though vacant. You pay tax on deemed annual value of the 3rd flat (minus 30% standard deduction and home loan interest if any). |
| I have a home loan on my SOP. The property was completed 8 years after I borrowed the money. How much interest can I claim? | Only ₹30,000 — not ₹2,00,000. The ₹2L limit applies only if construction is completed within 5 years of borrowing. Since it took 8 years, you fall under Section 22(2)(b) with the ₹30,000 cap. |
| My tenant was 6 months behind in rent. I received ₹60,000 in arrears in FY 2026-27 (a different year). Is this taxable? | Yes — Section 23 makes it taxable as house property income in FY 2026-27 (year of receipt). Taxable = ₹60,000 − 30% = ₹42,000. Taxable even if you no longer own the property. |
| I borrowed ₹50L for house purchase, paid ₹3L interest during pre-construction period, and took possession in April 2026. How is pre-construction interest treated? | ₹3L ÷ 5 = ₹60,000 per year. This ₹60,000 is added to the current year's home loan interest deduction for each of FY 2026-27 to FY 2030-31 (5 years starting from year of possession). |
| My flat was vacant for 4 months. The fair rent is ₹20,000/month. Actual rent received = ₹96,000 (8 months × ₹12,000). Annual value? | Vacancy relief applies — actual rent (₹96,000) < fair rent (₹2,40,000). Since vacancy caused the shortfall, annual value = ₹96,000 (actual rent). Less municipal taxes paid = NAV. Then 30% SD + interest. |
| A husband gifted a flat to his wife for no consideration. She rents it out. Who pays tax on rental income? | The husband — Section 25(a) deems the husband to be the owner since he transferred without adequate consideration. The wife's rental income is clubbed with the husband's income under house property head. |