When you earn rent from a house, the government doesn't tax the full rent — it lets you deduct certain expenses first. Section 24 defines exactly those two deductions, and every CA Inter student must know them cold because this section appears in almost every House Property problem.
Deduction (a) — Standard Deduction @ 30% of Annual Value: This is a flat, no-questions-asked deduction. You don't need to prove any actual expense. The law simply says: take 30% of the Annual Value (AV) and deduct it. This covers repairs, maintenance, insurance — everything lumped together. But here's the catch students miss: AV for a self-occupied property is ₹Nil, so 30% × ₹0 = ₹0. This deduction is practically useful only for let-out properties.
Deduction (b) — Interest on Home Loan: If you borrowed money to buy, construct, repair, renew, or reconstruct the house, the interest paid on that loan is deductible. For a let-out property, there is no upper limit — 100% of actual interest paid is deductible. For a self-occupied property, limits apply based on when the loan was taken:
- Loan taken before 1 April 1999: maximum deduction is ₹30,000.
- Loan taken on or after 1 April 1999 for purchase/construction, and the property is acquired or constructed within 5 years from the end of the financial year in which the loan was taken: maximum deduction is ₹2,00,000.
- If the 5-year condition is not met (i.e., construction dragged beyond 5 years): limit falls back to ₹30,000.
- The combined cap for self-occupied property under both provisos cannot exceed ₹2,00,000 in any case.
Also important: to claim ₹2,00,000, the assessee must furnish an interest certificate from the lender specifying the interest amount. No certificate → no deduction beyond ₹30,000. This is asked frequently as a 4-mark question where students lose marks for forgetting the 5-year rule or the certificate requirement.
Note: Pre-construction interest (interest paid before the year of possession) is deductible in 5 equal instalments starting from the year of possession — this rule works alongside Section 24(b) and often appears as a twist in exam problems.
Example 1 — Let-Out Property
Mr. Sharma owns a house in Delhi that he has let out. Details for FY 2025-26:
- Actual rent received: ₹3,60,000 p.a.
- Municipal taxes paid: ₹20,000
- Home loan interest paid: ₹1,80,000
Working:
| Step | Amount |
|---|---|
| Gross Annual Value (GAV) | ₹3,60,000 |
| Less: Municipal taxes paid | (₹20,000) |
| Net Annual Value (NAV) | ₹3,40,000 |
| Less: 30% standard deduction u/s 24(a) [30% × ₹3,40,000] | (₹1,02,000) |
| Less: Interest on home loan u/s 24(b) [no limit for let-out] | (₹1,80,000) |
| Income from House Property | ₹58,000 |
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Example 2 — Self-Occupied Property with 5-Year Rule
Ms. Iyer took a home loan of ₹40,00,000 on 15 June 2019 (i.e., FY 2019-20) to construct her house. Construction was completed on 10 March 2022 (within 5 years of end of FY 2019-20, i.e., before 31 March 2025 ✓). She paid interest of ₹2,80,000 in FY 2025-26. Property is self-occupied.
Working:
| Step | Amount |
|---|---|
| Net Annual Value (self-occupied) | ₹Nil |
| Less: 30% standard deduction u/s 24(a) [30% × ₹0] | ₹Nil |
| Less: Interest u/s 24(b) — actual ₹2,80,000, capped at ₹2,00,000 | (₹2,00,000) |
| Income from House Property (Loss) | (₹2,00,000) |
Final answer: Loss of ₹2,00,000 under House Property, which can be set off against other heads (up to ₹2,00,000 in the same year).
📖 Bare Act text — Section 24, Income Tax Act 1961
(click to expand)
Income chargeable under the head "Income from house property" shall be computed after making the following deductions, namely:—
(a) a sum equal to thirty per cent. of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital: Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction or, as the case may be, the aggregate of the amount of deduction shall not exceed thirty thousand rupees: Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction or, as the case may be, the aggregate of the amounts of deduction under this clause shall not exceed two lakh rupees. Provided also that no deduction shall be made under the second proviso unless the assessee furnishes 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. Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.