Section 24(b) lets a home owner deduct interest on a loan taken to buy, build, repair or reconstruct a house from their income under “house property”. For a self-occupied house the deduction is capped at Rs 2,00,000 a year, and it is available only under the old regime. From tax year 2026-27 the same rule sits in section 22(1)(b) of the Income-tax Act, 2025, with the Rs 2 lakh cap in section 22(2), so the change for most salaried taxpayers is the section number, not the money.

The limits that matter

• Self-occupied (up to two houses): interest deduction capped at Rs 2,00,000 in total. The cap falls to Rs 30,000 if the loan was for repairs, or if purchase or construction is not completed within five years from the end of the year the loan was taken.
• Pre-construction interest: interest paid before the year of completion is claimed in five equal parts starting that year, within the same overall cap for a self-occupied house.
• Let-out house: no cap on the interest itself, but the resulting house-property loss can be set off against salary only up to Rs 2,00,000 a year (section 71 under the 1961 Act, section 109 under the 2025 Act); the rest is carried forward.
• Certificate: the lender’s interest certificate is required for the claim.

Old regime versus new regime

Under the new regime (section 115BAC, now section 202), interest on a self-occupied house is not deductible at all. Interest on a let-out house is still deducted from that property’s rent, but any resulting loss cannot be set off against salary or other income.

A worked example under the old regime: Priya pays Rs 2,60,000 interest on a self-occupied flat bought with a home loan. Her deduction is Rs 2,00,000; the remaining Rs 60,000 is lost. She also repays Rs 1,10,000 of principal, which counts towards Section 80C (section 123 from 2026-27) within its Rs 1,50,000 limit. If she switches to the new regime, both deductions go, and the regime comparison has to account for that.

How payroll handles it

Employees declare the interest in their investment declaration (Form 12BB for FY 2025-26, Form 124 from 2026-27) with the lender’s certificate, and payroll reduces salary TDS accordingly. The usual failures are claiming the full interest without the cap, and claiming a self-occupied loss after opting for the new regime.

Frequently asked questions

Can both joint borrowers claim Rs 2 lakh each?

Generally yes: if each is a co-owner and co-borrower paying their share of the EMI, each computes their own house-property income and can claim up to the cap on their share of interest (co-owners are taxed separately under section 26 of the 1961 Act and section 24 of the 2025 Act).

Does the cap apply in the year of possession?

Yes, for a self-occupied house the current-year interest plus the one-fifth instalment of pre-construction interest together cannot exceed Rs 2,00,000, a point many proof-of-investment reviews miss.

Is home loan interest counted in the Rs 1.5 lakh 80C limit?

No, only principal repayment goes to 80C; interest is a separate house-property deduction.

See what the interest claim is worth under each regime in the income tax calculator.