Section 24(b) on Let-Out Property 2026: No ₹2 Lakh Cap on Interest, But a Real Limit on Loss Set-Off

By Nitish Bharadwaj · Published Aug 3, 2026 · 6 min

Interest on a let-out property carries no ₹2 lakh cap under Section 24(b) — the entire amount is deductible against rental income in both tax regimes. The catch appears when interest exceeds rental income: the old regime lets you set off up to ₹2 lakh of that loss against salary or other income, while the new regime blocks any set-off against other income heads, parking the full loss for future house-property income only. This guide walks through a numbers example showing what each regime costs a landlord with a large home loan.

Section 24(b) of the Income Tax Act gets summarized everywhere as "you can deduct up to ₹2 lakh in home loan interest" — a simplification that's only true for a self-occupied property under the old tax regime. Rent the same property out instead, and the ₹2 lakh ceiling disappears entirely: the full interest amount is deductible against rental income, in both the old and new regime. The nuance that trips up most landlords isn't the deduction itself — it's what happens when that interest is larger than the rent, producing a loss from house property, because what you can do with that loss depends entirely on which regime you've picked.

No Cap on Let-Out Property Interest — In Either Regime

For a self-occupied property, Section 24(b) caps the interest deduction at ₹2 lakh a year, and only under the old tax regime — the new regime allows zero deduction on a self-occupied home's loan interest. A let-out (rented) property works differently: the entire interest paid during the year is deductible against the rental income earned from that property, with no upper limit, and this holds true whether you file under the old regime or the new one. The deduction is computed against Net Annual Value — rent received minus municipal taxes paid — after a flat 30% standard deduction under Section 24(a) for repairs and maintenance, regardless of what you actually spent on upkeep.

The Real Catch: What Happens When Interest Exceeds Rent

Once interest paid crosses what's left of the rental income after the 30% standard deduction and municipal taxes, the property generates a loss from house property rather than positive income — and this is where the two regimes diverge sharply. Under the old regime, that loss can be set off against any other head of income — salary, business income, or capital gains — up to a limit of ₹2 lakh in the same financial year, with anything beyond that carried forward for up to eight assessment years. Under the new regime, none of that loss can be set off against any other head of income in the current year at all; it can only be carried forward, for the same eight assessment years, to be adjusted solely against future house property income.

A Worked Example

Say you've rented out a property earning ₹3,00,000 a year, and paid ₹20,000 in municipal taxes. Net Annual Value works out to ₹2,80,000, and the flat 30% standard deduction under Section 24(a) removes another ₹84,000, leaving ₹1,96,000 as income from the property before interest. If the home loan interest paid for the year is ₹4,50,000, the property runs a loss of ₹2,54,000 (₹1,96,000 minus ₹4,50,000).

The old-regime taxpayer gets an immediate ₹2 lakh reduction in taxable salary income this year. The new-regime taxpayer gets nothing today — the entire ₹2,54,000 loss sits parked, usable only once there's future house property income to absorb it against, which for someone with a single rental property might not arrive for years.

Why This Matters for the Old vs New Regime Decision

This is a meaningful, often-overlooked factor in choosing between tax regimes for anyone carrying a large loan on a rented-out property — our general Section 24 and 80C home loan tax benefit guide covers the self-occupied side of this comparison in depth, but a landlord's calculation runs differently because the constraint isn't the interest deduction itself, it's the set-off. If your rental property's interest routinely exceeds the rent by a large margin, the old regime's ₹2 lakh set-off against salary is real, current-year cash-flow value that the new regime simply doesn't offer, and it's worth weighing directly against whatever the new regime saves you elsewhere — a comparison our new vs old tax regime guide for salaried taxpayers walks through more broadly.

One More Wrinkle: Deemed Let-Out Property

Since the Finance Act 2019, you're allowed up to two self-occupied properties. Own a third house that you neither rent out nor occupy, and it's treated as "deemed let out" — taxed as if it were earning a notional rent, with the same no-cap interest deduction and loss set-off rules described above applying to it as well. This catches out people who assume an empty second or third home is tax-neutral simply because no rent is actually changing hands — our full guide to how notional rent is calculated on a deemed let-out house walks through the exact computation and what you can deduct against it.

The Bottom Line

The ₹2 lakh figure most people associate with Section 24(b) applies only to a self-occupied property under the old regime — a rented-out property gets an uncapped interest deduction in both regimes. What actually differs by regime is whether a resulting loss can offset your salary this year (old regime, up to ₹2 lakh) or has to wait, carried forward for up to eight years, against future rental income (new regime, no immediate offset at all). For anyone with a big loan on a rental property, that difference is worth running through your own numbers before picking a regime.

If your property earns more rent than it costs, the question is not the loss but the tax on the rent itself. Our guide to rental income tax and the 30% standard deduction walks through the full calculation with a worked example.