Direct and Indirect Taxation · Income from House Property

Section 22 Deductions and Computation of House Property Income

Updated 10 October 2026 · Fact-checked

Under the Income-tax Act, 2025, income from house property is the annual value after local taxes paid (the NAV), less two deductions under section 22: 30% of that annual value, and interest on borrowed capital. Pre-construction interest is allowed in five equal yearly instalments. Self-occupied interest is capped at ₹2,00,000 or ₹30,000.

Understand Deductions under Section 22 and Computation

Income from house property is charged on the annual value of a building or land attached to it, not on rent actually spent or saved. Section 21 fixes the annual value. Section 22 then lists what you may deduct from it.

Start with the annual value under section 21. It is the higher of the reasonable expected rent and the actual rent received or receivable, with the vacancy rule applying if a let property was vacant and the rent fell short. From it you reduce the local taxes (municipal taxes) actually paid by the owner during the tax year. The result is commonly called the net annual value (NAV).

Section 22(1) allows only two kinds of deduction. First, 30% of the annual value as determined under section 21. Second, interest payable on capital borrowed to acquire, construct, repair, renew or reconstruct the property. No other expense, such as repairs, insurance or collection charges, is allowed separately. The 30% covers them.

Interest is allowed on an accrual basis, that is, as payable, whether or not you have paid it. Interest for the period before the tax year of acquisition or construction (the pre-construction period) is added up and allowed in five equal instalments, starting with the tax year of acquisition or construction and the four tax years after it.

For a self-occupied house (annual value nil under section 21(6)), there is no rent, so no 30% deduction arises. Only interest is deducted, and it is capped by section 22(2). The loss is a house property loss, to be set off as the law allows.

Key rules to remember

Net annual value: NAV = Annual value (section 21) − Local taxes actually paid by owner during the tax year; Section 21(3) reduces the annual value by local taxes. Deduct them only if the owner paid them in the tax year, whenever they became due. Taxes paid by the tenant are not deducted.
Standard deduction: Section 22(1)(a): 30% × annual value as determined under section 21 = 30% × NAV; The annual value under section 21 is already reduced by local taxes paid, so work the 30% on the figure after taxes. Never apply it when the annual value is nil.
Interest on borrowed capital: Section 22(1)(b): interest payable for the tax year on capital borrowed for acquisition, construction, repair, renewal or reconstruction; Allowed on accrual basis, whether or not paid.
Pre-construction interest: Yearly deduction = Total interest for the prior period ÷ 5; Allowed for the tax year of acquisition or construction and the next four tax years. Reduce it first by any amount already allowed under another provision of the Act.
Cap for self-occupied property: Total interest deduction ≤ ₹2,00,000 (conditions met) or ₹30,000 (any other case); The ₹2,00,000 cap needs acquisition or construction with borrowed capital completed within five years from the end of the tax year of borrowing, and an interest certificate. Total of caps across such properties cannot exceed ₹2,00,000.
Income from house property (let): Income = NAV − 30% of NAV − Interest (current year + 1/5 of pre-construction interest); NAV is the annual value after local taxes. A negative figure is a loss under this head.

How to solve Deductions under Section 22 and Computation questions

Use this order for any house property computation. It keeps every deduction in its place and earns step marks.

1Classify the property: self-occupied (up to two houses specified by the assessee), let out, or partly let. Check whether it is deemed let or held as stock-in-trade.
2Find the annual value under section 21: higher of expected rent and actual rent, then apply the vacancy rule and unrealised rent adjustment if given.
3Deduct local taxes actually paid by the owner in the tax year to get the NAV. This is the annual value after local taxes. Write nil for self-occupied property.
4Deduct 30% of the NAV (the annual value after local taxes). Skip this step if the annual value is nil.
5Compute interest: current year interest on accrual basis plus one-fifth of pre-construction interest, if the year falls in the five-year window.
6For self-occupied property, apply the cap of ₹2,00,000 or ₹30,000 to the total of items in step 5.
7Subtract the deductions from NAV and show the result as income or loss from house property. Treat each property separately, then total them.
8If the question gives a section 130 loan, note its conditions before deducting anything more.

Quickest way: Four-line format for a let-out house

When to use it: Use when a question gives rent, municipal taxes and loan interest for one let-out property and you are short on time.

Line 1: Annual value (higher of expected and actual rent, adjusted for vacancy).
Line 2: Less municipal tax paid by owner = NAV.
Line 3: Less 30% of NAV and interest (including 1/5 of pre-construction interest).
Line 4: Income from house property. Check the sign, because a negative figure is a loss.

Common mistakes in Deductions under Section 22 and Computation

Deducting municipal tax that the tenant paid, or taxes that were only due but unpaid.
Students treat all municipal tax in the question as deductible.
Fix: Deduct only taxes actually paid by the owner during the tax year, as section 21(3) says.
Claiming the 30% deduction on a self-occupied house.
The format for let property is applied automatically.
Fix: Annual value is nil under section 21(6), so 30% of it is nil. Only interest, within the cap, is deducted.
Taking the entire pre-construction interest in one year.
Students forget the five-instalment rule in section 22(1)(c).
Fix: Divide by 5 and claim it in the year of acquisition or construction and the next four years. Do not claim it in years before completion.
Ignoring the interest cap for a self-occupied property.
The full interest figure looks like a normal deduction.
Fix: Add current interest and the pre-construction instalment, then limit the total to ₹2,00,000 or ₹30,000 as the conditions decide.
Deducting repairs, insurance or rent collection charges in addition to 30%.
Business-income habits carry over.
Fix: Section 22(1) allows only the 30% and interest. Ignore other expenses given in the question.
Deducting interest only when it is paid.
Cash-basis thinking.
Fix: Interest payable for the year is deductible whether or not paid. Unpaid interest is still allowed.

Worked examples

Example 1

Mr. Arvind Rao owns a house in Pune let out for ₹30,000 per month for the whole tax year. Expected rent is ₹3,00,000 a year. Municipal tax of ₹20,000 was paid by him during the year. Interest on a housing loan for the year is ₹1,10,000. Compute income from house property.

Show the solution

Actual rent = ₹30,000 × 12 = ₹3,60,000. Expected rent = ₹3,00,000. Higher is ₹3,60,000, so annual value before local taxes = ₹3,60,000.
Less municipal tax paid by owner: ₹20,000. Annual value after local taxes (NAV) = ₹3,40,000.
Standard deduction under section 22(1)(a): 30% × ₹3,40,000 = ₹1,02,000, because the annual value under section 21(3) is after local taxes.
Interest on borrowed capital = ₹1,10,000.
Income = ₹3,40,000 − ₹1,02,000 − ₹1,10,000 = ₹1,28,000.

Answer: Income from house property = ₹1,28,000.

Example 2

Ms. Neha Iyer bought a flat in Chennai and occupies it herself. She borrowed ₹30,00,000 on 1 July 2023 and the construction was completed on 1 February 2026. Interest for the period 1 July 2023 to 31 March 2025 was ₹3,00,000 and she was allowed nothing earlier. Interest for tax year 2026-27 is ₹2,10,000. Assume the conditions for the higher cap are met. Compute income from house property for tax year 2026-27, taking the completion tax year as 2025-26.

Show the solution

Annual value is nil as the house is self-occupied, so no 30% deduction and no municipal tax deduction.
Pre-construction interest is ₹3,00,000, taken up to the end of the year before completion. One-fifth = ₹60,000 a year.
Completion in 1 February 2026 falls in the tax year 2025-26, so instalments run for 2025-26, 2026-27, 2027-28, 2028-29 and 2029-30. The year 2026-27 is in the window.
Total interest for 2026-27 = ₹2,10,000 + ₹60,000 = ₹2,70,000.
Cap: ₹2,00,000 (conditions met). Allowed interest = ₹2,00,000.
Income = nil − ₹2,00,000 = −₹2,00,000.

Answer: Loss from house property = ₹2,00,000 for tax year 2026-27.

Exam tips

Always show NAV, 30% deduction and interest as separate lines so you earn step marks even if one figure is wrong.
Read whether the property is self-occupied, let, or partly let before doing anything. The format changes completely.
For pre-construction interest, write the year count (five years starting from the completion year) in your working.
In MCQs, check the cap first. Many self-occupied interest questions are solved by choosing between ₹30,000 and ₹2,00,000.
State the section number (section 21 for annual value, section 22 for deductions) in the working. It shows the examiner you know the source.

Practice questions from Income from House Property

Deductions under Section 22 and Computation in other exams

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

Deductions under Section 22 and Computation: frequently asked questions

What deductions are allowed from income from house property?

Section 22(1) allows two deductions: 30% of the annual value and interest on borrowed capital. Pre-construction interest is allowed in five equal instalments. No other expense is allowed.

Is the 30% standard deduction available on a self-occupied house?

No. The annual value of a self-occupied house is nil under section 21(6), so 30% of it is also nil. You can claim only interest, subject to the cap.

What is the interest limit for a self-occupied house?

It is ₹2,00,000 if the property was acquired or constructed with borrowed capital within five years from the end of the tax year of borrowing and you have the lender's certificate. In any other case it is ₹30,000.

How is pre-construction interest deducted?

Add up the interest for the period before the tax year of acquisition or construction. Claim one-fifth in that tax year and one-fifth in each of the next four tax years.