Taxation · Income from House Property

Self-Occupied and Deemed Let-Out Property

Updated 4 October 2026 · Fact-checked

A self-occupied house is one you use as your home. Its annual value is nil, so only interest on borrowed capital is deducted, up to ₹2,00,000 in the old regime. Nil value applies to up to two houses. Any other house you do not let out is deemed let out, and its annual value is its expected rent.

Understand Self-Occupied and Deemed Let-Out Property

Income from house property is taxed on the annual value of a building or land attached to it, not on rent actually received. The owner is taxed. For a house you live in yourself, the law gives relief: the annual value is nil.

A house is self-occupied when you use it for your own residence. It also counts as self-occupied if you cannot live in it because your job, business or profession is at another place and you stay there in a house you do not own. A house that stays vacant and is not let out is also treated as self-occupied.

The nil value is available for up to two self-occupied houses. If you own more than two, you pick the two that suit you best, meaning the two that give the lowest tax. Every other house is deemed to be let out, even if you live in it or keep it empty. You are taxed on its expected rent, as if it were let.

So a self-occupied house gives no income, and the only claim is interest on a housing loan, subject to a cap. A deemed let-out house is computed like a let-out house, except there is no actual rent, so the gross annual value is the expected rent. The usual deductions apply: municipal taxes paid by you, the standard deduction of 30% of net annual value, and interest.

Two regime points matter for the tax year 2026-27. Under the old regime, a house property loss can be set off against other heads of income only up to ₹2,00,000 in a year. The balance is carried forward for 8 years. Under the new regime, interest on a self-occupied house is not deductible, and a house property loss cannot be set off against other heads. Always read the question for the regime.

Key rules to remember

Annual value of self-occupied house: Annual value = Nil (up to two houses); Applies to a house used for own residence, or one not occupied because of work at another place, or one kept vacant and not let out.
Income of self-occupied house (old regime): Income = 0 − Interest on borrowed capital (maximum ₹2,00,000 in total for all such houses); The ₹2,00,000 limit needs a loan taken for acquisition or construction, with construction or acquisition completed within 5 years from the end of the tax year of the loan. Otherwise the limit is ₹30,000. The limit is one overall cap, not per house.
Pre-construction interest: Annual claim = 1/5 × interest for the period before completion; Claimed in 5 equal instalments from the year of completion. It is added to the current year's interest and the combined claim stays within the cap.
Deemed let-out house: gross annual value: GAV = Expected rent (higher of municipal value and fair rent, subject to the standard rent cap if the property is rent-controlled); There is no actual rent, so actual rent and vacancy allowance do not apply.
Deemed let-out house: income: Income = GAV − Municipal taxes paid by owner − 30% of net annual value − Interest on borrowed capital; Interest is allowed in full, with no ₹2,00,000 cap. Pre-construction interest is also allowed in 5 instalments.
Limit on number of houses: Nil value for any two houses of your choice; all others deemed let out; The assessee chooses the two houses that minimise tax. Where there is no interest, this usually means the two highest expected rents, because those become nil. Where interest is claimed, compare the total income under the alternatives before choosing.
Set-off of house property loss (old regime): Inter-head set-off = loss, limited to ₹2,00,000 a year; balance carried forward for 8 years; Under the new regime, a house property loss cannot be set off against other heads.

How to solve Self-Occupied and Deemed Let-Out Property questions

Use this order for any question on self-occupied or deemed let-out property.

1List every house the person owns, with its use during the year. Rule out any house used for own business or profession, which is not taxed under this head.
2Check for let-out houses. A house actually let out is computed under the let-out rules, so it is not part of this topic.
3Count the remaining houses. If there are two or fewer, all are self-occupied with nil annual value. If more than two, normally choose the two with the highest expected rent as self-occupied. Where houses carry interest, test the other choices and keep the one that gives the lowest tax.
4Treat each other house as deemed let out. Find its expected rent, which gives GAV. Deduct municipal taxes paid by the owner, then 30% of net annual value, then interest.
5For each self-occupied house, start from nil. Deduct interest, applying the ₹2,00,000 or ₹30,000 limit as one overall cap across all such houses. Include the pre-construction instalment.
6Identify the regime. Under the new regime, allow no interest on self-occupied houses, and do not set off a house property loss against other heads.
7Add the results of all houses to get income from house property. Show a loss with brackets. Under the old regime, set it off against other heads only up to ₹2,00,000 and carry forward the balance for 8 years.

Quickest way: Rank, choose, compute

When to use it: Use this in the exam hall for problems with three or more houses or a mix of loan details.

Write each house's expected rent in a small column and rank them.
Provisionally mark the top two as self-occupied (nil). If a lower-rent house carries a large interest claim, quickly test that alternative too.
Compute the remaining houses fully, using a fixed layout: GAV, less municipal taxes, NAV, less 30%, less interest, income.
Add all self-occupied interest in one line and apply the ₹2,00,000 cap once.
For MCQs, test the options: nil value means no income without interest, a third house is never nil, and the ₹2,00,000 cap is never per house.
For written answers, show the choice of houses, the cap check and the final total on separate lines so each earns step marks.

Common mistakes in Self-Occupied and Deemed Let-Out Property

Applying the ₹2,00,000 interest limit to each self-occupied house separately.
Students read the limit as a per-house benefit.
Fix: Treat ₹2,00,000 as one overall cap for all self-occupied houses together.
Treating a third house as self-occupied because the owner lives in it part of the year.
Students focus on actual use and forget the two-house limit.
Fix: Only two houses get nil value. Every other house is deemed let out, whatever its use.
Choosing the self-occupied houses randomly or by the order given.
The question says the assessee may choose, but students do not use the choice.
Fix: Choose the two houses that give the lowest tax. Usually these are the two with the highest expected rent, but check the interest on each house. Show the choice in the answer.
Deducting municipal taxes and the 30% standard deduction for a self-occupied house.
Students copy the let-out layout for every house.
Fix: Self-occupied houses start at nil, with only interest claimed. Municipal taxes and the 30% deduction apply only to deemed let-out houses.
Allowing the interest cap of ₹2,00,000 where the loan conditions are not met.
Students ignore the loan date and the 5-year completion rule.
Fix: Check the purpose of the loan and the completion date. If the conditions fail, limit the claim to ₹30,000.
Claiming self-occupied interest or setting off house property loss under the new regime.
The regime is not checked before computing.
Fix: State the regime first. Under the new regime, there is no deduction for self-occupied interest and no inter-head set-off of the loss.
Setting off a house property loss against other heads without any limit under the old regime.
Students remember that set-off is allowed and forget the cap.
Fix: Under the old regime, set off at most ₹2,00,000 a year against other heads. Carry forward the balance for 8 years.

Worked examples

Example 1

Meera owns two houses, both used for her own residence in tax year 2026-27. House A has loan interest of ₹1,40,000 and House B has loan interest of ₹90,000. Both loans were taken for construction completed within 5 years. Compute income from house property under the old regime.

Show the solution

Both houses are self-occupied, so the annual value of each is nil.
Total interest on both houses = ₹1,40,000 + ₹90,000 = ₹2,30,000.
The limit of ₹2,00,000 applies in total, since the conditions are met.
Deduction allowed = ₹2,00,000 (lower of ₹2,30,000 and ₹2,00,000).
Income = 0 − ₹2,00,000 = (₹2,00,000).

Answer: Income from house property is a loss of ₹2,00,000. Under the old regime it can be set off against other heads, as it is within the ₹2,00,000 yearly limit.

Example 2

Rohan owns three houses, none let out. Expected rents are: House A ₹6,00,000, House B ₹4,50,000, House C ₹2,70,000. House A has interest of ₹1,50,000 (conditions for the ₹2,00,000 limit met). House C has municipal taxes of ₹12,000 paid by Rohan and interest of ₹50,000. House B has no loan. Compute income from house property under the old regime for tax year 2026-27.

Show the solution

Rohan owns three houses, so only two can be self-occupied. He tries A and B, the two with the highest expected rent. Their annual value is nil.
House A: income = 0 − ₹1,50,000 = (₹1,50,000), which is within the ₹2,00,000 cap. House B: nil, as it has no interest.
House C is deemed let out. GAV = expected rent = ₹2,70,000.
Less municipal taxes paid = ₹12,000. Net annual value = ₹2,58,000.
Standard deduction = 30% × ₹2,58,000 = ₹77,400.
Interest = ₹50,000. Income of House C = ₹2,58,000 − ₹77,400 − ₹50,000 = ₹1,30,600.
Total with A and B self-occupied = ₹1,30,600 − ₹1,50,000 + 0 = (₹19,400).
Check the alternative of A and C self-occupied: B is deemed let out with GAV ₹4,50,000, 30% deduction ₹1,35,000, income ₹3,15,000. Self-occupied interest = ₹1,50,000 + ₹50,000 = ₹2,00,000, within the cap. Total = ₹3,15,000 − ₹2,00,000 = ₹1,15,000, which is higher.
Check B and C self-occupied: A is deemed let out, income = ₹6,00,000 − ₹1,80,000 − ₹1,50,000 = ₹2,70,000. Self-occupied interest is ₹50,000. Total = ₹2,20,000, which is also higher.
So A and B self-occupied gives the lowest income.

Answer: Income from house property is a loss of ₹19,400, with A and B as self-occupied houses. The loss is within the ₹2,00,000 limit, so under the old regime it can be set off against other income.

Exam tips

Write the line 'Houses A and B chosen as self-occupied as this gives the lowest income' in your answer, and show the check against the alternative if interest is involved. It earns marks and shows you used the option.
Look for the word 'deemed'. A question that says a third house is vacant or occupied by a relative is testing the deemed let-out rule.
Check the loan date and completion date in every interest question, as they decide whether the cap is ₹2,00,000 or ₹30,000.
If the question gives no regime, follow the instruction in the question. If it is silent, state your assumption briefly before computing.
In MCQs, watch for options that give a non-nil value for a self-occupied house or a per-house cap. Both are wrong.
If a house property loss is set off against other heads under the old regime, apply the ₹2,00,000 yearly limit and carry forward the balance.

Practice questions from Income from House Property

Self-Occupied and Deemed Let-Out Property in other exams

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

CA FinalClassification of Property: Investment vs Owner-Occupied

Self-Occupied and Deemed Let-Out Property: frequently asked questions

How many self-occupied houses can I have?

You can have nil annual value for up to two self-occupied houses. If you own more, you choose the two that give the lowest tax, and the rest are deemed let out. With no interest, these are usually the two with the highest expected rent.

What is a deemed let-out property?

It is a house that is not let out and not one of your two chosen self-occupied houses, but is taxed as if it were let. Its gross annual value is the expected rent. You then deduct municipal taxes paid, the 30% standard deduction and interest.

What is the difference between self-occupied and let-out property?

A self-occupied house has nil annual value, and only interest can be claimed, within a cap. A let-out house is taxed on its annual value, based on rent or expected rent, with municipal taxes, the 30% deduction and full interest allowed.

Is interest on a self-occupied house allowed under the new regime?

No. Under the new regime, interest on a self-occupied house is not deductible. The ₹2,00,000 limit works only under the old regime.