Self-Occupied vs. Let-Out Property – What’s the Better Deal for Tax Benefits?

Purchasing a home is a major milestone, but what follows can be just as important. Whether you choose to live in the property or lease it out, your decision carries notable tax implications. Understanding the difference between a self-occupied and let-out property can help you make smarter financial choices and optimise your tax savings in the long run. 

So, let’s break down self-occupied vs. let-out property—which one gives you more advantages, and how do taxes play a role?  

What Does a Self-Occupied and Let-Out Property Mean?

If you decide to live in the house you’ve purchased with your family, that’s what we call a self-occupied property. You’re the owner and the resident. There’s no rental income coming in, and it’s your primary home. 

On the other hand, let’s say you’ve moved to another city for work and decide to rent out your home to someone else. In that case, it becomes a let-out property—a house that earns you monthly rental income. 

Tax Benefits on a Self-Occupied Property

Owning and living in your house has its perks. If you’ve taken a Home Loan to purchase or build this property, you can claim deductions under two sections of the Income Tax Act, 1961: 

Section 24(b) allows you to deduct up to Rs.2 Lakh annually on interest paid towards your loan. The deductions can be claimed only if the construction is completed within five years. If it’s delayed, your deduction drops to Rs.30,000.  

Section 80C, meanwhile, lets you claim up to Rs.1.5 Lakh for the principal repayment. So, if you’re paying off both interest and principal each year, that’s a potential total of Rs.3.5 Lakh in tax savings. 

Let-Out Property and Tax Implications

Think of it this way—your home isn't just a place anymore; it's now an income-generating asset. Each month, the rent you receive is treated as income from house property, and that comes with its own set of benefits and responsibilities. 

Here’s how it works: 

• Standard Deduction – You are eligible to claim a 30% deduction on the net annual value of the property under Section 24(b). This deduction accounts for expenses like repairs and upkeep. 
• Municipal Taxes – Property tax and other municipal charges—if paid by you and not your tenant—can be deducted from the annual value. 
• Section 80C Benefit – Regardless of whether the property is self-occupied or let out, you can claim up to Rs. 1.5 Lakh each year for principal repayments on your Home Loan under Section 80C. 
• Interest on Housing Loans – There’s no cap on how much interest you can claim as a deduction on a loan taken for your let-out property. Unlike self-occupied homes (where it’s limited to Rs. 2 Lakh), here you can deduct the full amount of interest paid.  

What Happens if the Property Is Vacant?

If you’ve listed your house for rent but haven’t found a tenant, it may still be treated as a deemed let-out property, particularly if you own more than two houses. In such situations, a notional rent, based on the property’s market value, is assumed and treated as taxable income. The idea behind this is simple: if a property has the potential to earn rent, it’s considered capable of generating income, even if it’s not currently let out. 

When it comes to self-occupied vs. let-out property, the “better” choice depends on your goals. 

If you want stability and a sense of home, then self-occupation makes perfect sense. And with tax deductions of up to Rs.3.5 Lakh, you’re not missing out. 

But if your priority is income generation and loan repayment, let-out properties offer greater deductions—especially on interest—and help build an additional revenue stream.