Taxation · Deductions from Gross Total Income

Deductions for Loans, Rent and Interest in CA Inter Taxation

Updated 5 October 2026 · Fact-checked

These deductions from gross total income are for individuals who opt out of the default new tax regime. They cover full interest on an education loan for up to eight years, capped interest on eligible home and electric vehicle loans, and rent paid without HRA, limited to the least of three amounts. Test the conditions, then compute each limit.

Understand Deductions for Loans, Rent and Interest

After you total your income under the five heads, you reach gross total income. Chapter-type deductions are then subtracted to get total income. This topic covers four deductions that relate to money you pay out: interest on loans and rent.

A key point first. Under the Income-tax Act, 2025, the new tax regime is the default for an individual. These deductions are generally available only if the individual opts for the old regime. Always read the question for the regime. If it says the assessee has opted out of the default regime, or asks for the old-regime computation, claim them.

Education loan interest: The loan must be taken from a bank, financial institution or approved charitable institution, for higher education of yourself, your spouse, your children, or a student whose legal guardian you are. Higher education means any course of study pursued after passing the Senior Secondary Examination or its equivalent, from a recognised school, board or university. The whole interest you pay is deductible, with no upper limit. It is allowed from the year you start paying interest, for that year and the next seven, or until the interest is fully paid, whichever is earlier. Only an individual can claim it. Only interest counts, not principal.

Home loan interest for eligible buyers and EV loan interest (legacy deductions): Both are capped at ₹1,50,000 a year, and both depend on when the loan was sanctioned. These sanction windows have closed. They are legacy deductions that apply only to a loan already sanctioned inside the window. A loan sanctioned after the window gets no deduction, so do not claim them for a new loan. Use these two deductions only when the question states the loan, its sanction date and the conditions, and asks you to claim them.

The affordable-housing interest deduction applies to a loan from a financial institution sanctioned between 1 April 2019 and 31 March 2022, for a residential house whose stamp duty value is not more than ₹45,00,000, where you owned no residential house on the date of sanction. The EV deduction applies to a loan from a financial institution sanctioned between 1 April 2019 and 31 March 2023 for buying an electric vehicle. Check the sanction date first. A loan sanctioned outside the window gets no deduction.

The affordable-housing deduction covers only the interest that exceeds the amount allowed under the head Income from House Property, up to ₹1,50,000. Interest already deducted under that head cannot be claimed again. You also cannot claim it together with the earlier ₹50,000 home-loan interest deduction (meant for loans sanctioned in 2016-17) for the same loan.

Rent paid, no HRA: An individual who pays rent for a residence and gets no house rent allowance from any employer can claim a deduction for rent. This also helps the self-employed and those on salary without HRA. The deduction is the least of three amounts:

(a) ₹5,000 per month, which is ₹60,000 for a full year.
(b) 25% of adjusted total income.
(c) Rent paid minus 10% of adjusted total income.

Adjusted total income is gross total income minus long-term capital gains, minus short-term capital gains taxed at the special rate, minus other special-rate income, minus all Chapter-type deductions other than the rent deduction itself. Use this one base for both the 25% and the 10%.

The claim is not allowed if you, your spouse or your minor child own residential accommodation at the place where you reside or work. It is also not allowed if you own a self-occupied house at any other place. You must also file the prescribed declaration about rent paid.

Key rules to remember

Education loan interest deduction: Deduction = total interest paid in the year (no cap); Allowed for the first year of interest payment plus 7 more years, or until repaid if earlier. Individuals only. Interest only, not principal.
Rent paid deduction (no HRA received): Least of: (a) ₹5,000 × number of months; (b) 25% × adjusted total income; (c) rent paid − 10% × adjusted total income; Annual ceiling is ₹60,000, which is ₹5,000 per month for 12 months. Individual who receives no HRA. Not allowed if the individual, spouse or minor child owns residential accommodation at the place of residence or work, or if the individual owns a self-occupied house elsewhere. Declaration of rent paid is required.
Adjusted total income: Gross total income − long-term capital gains − short-term capital gains taxed at special rate − other special-rate income − all Chapter-type deductions other than the rent deduction; Do not subtract the rent deduction itself. Only the items listed above are removed from gross total income. Use this base for both 25% and 10% in the rent formula.
Affordable housing loan interest (legacy deduction): Deduction = lower of (interest paid − interest allowed under Income from House Property) and ₹1,50,000; Covers only the interest in excess of the amount allowed under Income from House Property, so no interest is deducted twice. Loan from a financial institution sanctioned 1 April 2019 to 31 March 2022; stamp duty value ≤ ₹45,00,000; no residential house owned on date of sanction. The window has closed, so this is a legacy deduction for a loan sanctioned inside it. Use it only if the question states it, and never for a new loan. Cannot be claimed together with the earlier ₹50,000 home-loan interest deduction for the same loan.
Electric vehicle loan interest (legacy deduction): Deduction = lower of interest paid and ₹1,50,000; Loan from a financial institution sanctioned 1 April 2019 to 31 March 2023 for buying an EV. The window has closed, so this is a legacy deduction for a loan sanctioned inside it. Use it only if the question states it. A loan sanctioned after 31 March 2023 gets no deduction. Individual only.

How to solve Deductions for Loans, Rent and Interest questions

Use this order for any question on these deductions. It protects you from claiming something the facts do not allow.

1Check the assessee is an individual and has opted out of the default new regime. If the regime is not stated, say your assumption.
2Identify which deduction the facts point to: education loan, affordable housing, EV, or rent without HRA.
3Test the conditions: lender type, purpose of loan, sanction date, stamp duty value, no house owned, no HRA received.
4For the education loan, count the years from the first year interest was paid. If it is beyond the eighth year, the deduction is nil.
5For housing and EV interest, apply the ₹1,50,000 cap to interest only, never to principal.
6For rent, first find adjusted total income, then compute the three amounts and take the least.
7Check that the total deductions do not exceed gross total income, then deduct from gross total income and show the total income.

Quickest way: Sanction date, year count, then the least of three

When to use it: Use this for MCQs and for the first line of a written answer when time is short.

MCQ: spot the trigger words. 'No HRA' means rent deduction. 'Eight years' means education loan. 'Sanctioned on' means check the window for housing or EV.
Education loan: write the first year of payment, add 7, and see if the current tax year falls inside. Then deduct full interest.
Rent: do the three calculations in a single line. Monthly cap first (₹5,000 × months), then 25% of adjusted total income, then rent minus 10%. Pick the lowest.
Written format: state the condition, show each limit as a separate line, say 'least of the three', then give the deduction. Step marks come from the condition check and the working, not just the final figure.
No negative marking in MCQs. Still eliminate options that ignore the cap or use the wrong base, then pick the best remaining one.

Common mistakes in Deductions for Loans, Rent and Interest

Taking 25% or 10% on gross total income instead of adjusted total income.
Students remember the percentages but skip the step that strips out special-rate gains and other deductions.
Fix: Always compute adjusted total income as a separate line before the three-way comparison.
Claiming the rent deduction when HRA is received, even partly.
The question mentions salary and rent, and the student assumes it applies.
Fix: Read for 'no HRA received'. If any HRA is received, this deduction is not available.
Putting a ₹1,50,000 cap on education loan interest.
Students mix it up with the housing and EV deductions.
Fix: Education loan interest has no upper limit. Only the eight-year period limits it.
Counting the eight years from the year of taking the loan or from the year of the course start.
The word 'loan' makes students count from drawdown.
Fix: Count from the first year in which you pay interest. Allow that year plus seven more, or until fully repaid.
Allowing housing or EV interest for any loan, ignoring the sanction date.
Students focus on the cap and forget the window.
Fix: Write the sanction date and the window at the top of your answer. If the date falls outside, the deduction is nil.
Claiming the education loan deduction for a loan from a relative or for a course of a sibling.
The word 'education' seems enough.
Fix: The lender must be a bank, financial institution or approved charitable institution, and the student must be self, spouse, child, or a ward of whom you are legal guardian.

Worked examples

Example 1

Meera, an individual who has opted out of the default regime, receives no HRA. She pays rent of ₹8,000 per month for 12 months. Her gross total income is ₹2,60,000. She is entitled to a deduction of ₹60,000 for life insurance premium and similar savings. She has no capital gains. Neither she, her spouse nor her minor child owns residential accommodation at the place where she lives or works, and she owns no self-occupied house at any other place. She has filed the prescribed rent declaration. Compute the rent deduction and her total income.

Show the solution

Check the conditions: Meera is an individual, receives no HRA, and neither she, her spouse nor her minor child owns residential accommodation at the place where she resides or works. She owns no self-occupied house elsewhere. The declaration is filed. The rent deduction is allowed.
Adjusted total income = gross total income − special-rate gains − other Chapter-type deductions (other than rent) = ₹2,60,000 − nil − ₹60,000 = ₹2,00,000.
Limit (a): ₹5,000 × 12 = ₹60,000.
Limit (b): 25% × ₹2,00,000 = ₹50,000.
Limit (c): rent paid − 10% of adjusted total income = ₹96,000 − ₹20,000 = ₹76,000.
Least of the three = ₹50,000.
Total income = ₹2,60,000 − ₹60,000 − ₹50,000 = ₹1,50,000.

Answer: Rent deduction is ₹50,000 and Meera's total income is ₹1,50,000.

Example 2

Priya, an individual who has opted out of the default regime, has gross total income of ₹9,00,000 for tax year 2026-27. She took an education loan from a bank for her own MBA and began paying interest in financial year 2020-21. Interest paid in 2026-27 is ₹70,000. She also took a loan from a bank on 15 June 2023 to buy an electric car. Interest paid on it in 2026-27 is ₹1,80,000. Compute her deductions for these loans.

Show the solution

Education loan: the first year of interest payment is financial year 2020-21. Eight years run from 2020-21 to 2027-28. Counting 2020-21 as year 1, tax year 2026-27 is the seventh year, so the deduction is allowed.
Education loan deduction = full interest = ₹70,000 (no cap).
EV loan: the EV interest deduction covered loans from a financial institution sanctioned between 1 April 2019 and 31 March 2023. This loan was sanctioned on 15 June 2023, after the window closed, so the sanction-date condition fails.
EV loan deduction = nil. The ₹1,50,000 cap does not come into play.
Total deduction = ₹70,000 + nil = ₹70,000. This is within gross total income.
Total income, before any other deductions = ₹9,00,000 − ₹70,000 = ₹8,30,000.

Answer: Deduction is ₹70,000 (education loan only; EV loan interest gets nil because the loan was sanctioned after the window), and total income before other deductions is ₹8,30,000.

Exam tips

Read the regime first. A question that does not say the assessee opted out of the default regime may be testing whether you know these deductions are generally not allowed under the default regime.
For rent, show all three limits even if one is obviously the lowest. The examiner awards marks for each line.
For loan interest deductions, state the sanction date, lender and purpose in one sentence before calculating. Many MCQs hide the disqualifying fact in the date.
In education loan questions, write the year count as a list or a one-line range. It makes the eight-year check visible and error-free.
Do not cite section numbers unless you are sure of the 2025 Act numbering. Naming the deduction and stating the rule in words earns the marks.

Practice questions from Deductions from Gross Total Income

Deductions for Loans, Rent and Interest in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ExecutiveDeductions for Rent, Housing and Interest on Loans

Deductions for Loans, Rent and Interest: frequently asked questions

What is the deduction period for education loan interest?

It starts in the year you first pay interest and runs for that year plus the next seven years, so up to eight consecutive years. It ends earlier if the interest is fully repaid before that. There is no cap on the amount.

Can I claim the rent deduction if I get HRA?

No. The rent paid deduction is only for an individual who does not receive HRA. If you get HRA, the exemption works through the salary computation instead.

Is EV loan interest deductible for a loan from a relative?

No. The loan must be from a financial institution, such as a bank or a non-banking finance company. A loan from a relative or friend does not qualify. Also, the sanction window for this deduction has closed for new loans.

Can a company or firm claim these deductions?

No. Education loan, EV loan, affordable housing interest and rent paid deductions are available only to individuals, and under the old regime.

Can I claim the home loan deduction if I already own a house?

For the affordable-housing interest deduction, you must not own any residential house on the date the loan is sanctioned. If you already owned one, the deduction is not allowed.