# Interest Deduction Ceilings & Loss Set-off: Default vs Optional Regime

The deduction for housing-loan interest on a self-occupied / unoccupied property (SOP/UOP) depends on which regime the assessee is under. There is no ceiling for let-out (LOP) / deemed let-out (DLOP) properties under either regime.

## A. Default Tax Regime [Section 115BAC]

NO interest deduction on a loan for SOP/UOP when the Nil-AV (NAV = 0) benefit is claimed.
No restriction on interest deduction for LOP / DLOP.
Loss from let-out house property cannot be set off against income under other heads; it can only be carried forward to subsequent years.
No Chapter VI-A deductions generally available.

## B. Optional Tax Regime (Old Regime)

For SOP/UOP with NAV = 0, the interest deduction is capped:

Purpose of Loan	Conditions	Maximum Deduction
Construction / Acquisition	(1) Loan borrowed on or after 1/4/1999; (2) Construction/acquisition completed within 5 years from end of the PY in which loan was borrowed	Lower of Total Interest or ₹2,00,000
Other purposes (repairs, renovation, reconstruction)	—	Lower of Total Interest or ₹30,000

Crucial: The ₹2,00,000 / ₹30,000 limit is per assessee, NOT per property.
No limits for LOP/DLOP — full interest is deductible.
House property loss can be set off against other heads up to ₹2,00,000 in the year; the balance is carried forward.

## Chapter VI-A Benefits (Optional Regime)

Principal repayment → deductible under Section 80C (if borrowed from banks/FIs).
Additional interest deductions:
Section 80EE → ₹50,000 (loan sanctioned in PY 2016-17).
Section 80EEA → ₹1,50,000 (loan sanctioned between 1.4.2019 and 31.03.2022).

Worked example

### Example 1

Example (Optional regime, ₹2 lakh cap): Mr. B has a self-occupied house (NAV = 0). Housing loan interest for the year = ₹2,60,000, loan taken in 2015 for purchase, construction completed within 5 years.

Interest deduction = Lower of ₹2,60,000 or ₹2,00,000 = ₹2,00,000.
Income from house property = 0 − ₹2,00,000 = (₹2,00,000) loss, set off against other heads (up to the ₹2,00,000 limit).

### Example 2

Example (Default regime): Same facts as above but Mr. B is under the default regime (115BAC) and claims NAV = 0.

Interest deduction on SOP = NIL (no deduction allowed when Nil-AV benefit is claimed).
House property income = Nil. No loss, no carry-forward of this interest.

### Example 3

Example (Two SOPs, one cap): Mr. C has two self-occupied houses, both NAV = 0, with interest of ₹1,40,000 and ₹1,30,000 (both for acquisition, conditions met), under the optional regime.

Combined interest = ₹2,70,000, but capped at ₹2,00,000 per assessee (NOT per house).
Total deduction = ₹2,00,000 only.

⚠️ Common exam mistakes

Applying the ₹2,00,000 limit per property — it is per ASSESSEE across all SOP/UOP.
Claiming SOP interest under the default (new) regime when Nil-AV is opted — no such deduction is allowed there.
Applying the interest ceiling to let-out / deemed let-out properties — there is no ceiling for LOP/DLOP.
Forgetting the 5-year completion condition (and the 1/4/1999 borrowing condition) for the ₹2,00,000 limit — without them only ₹30,000 is allowed.
Setting off house-property loss beyond ₹2,00,000 against other heads — the inter-head set-off is capped at ₹2,00,000 per year.

Reference: Sections 24(b), 71, 115BAC — Income-tax Act, 1961

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Interest Deduction Limits & Set-off under Default vs Optional Tax Regime [Sec 24(b), 71, 115BAC]

Worked example

⚠️ Common exam mistakes