The deductions, and why the regime decides everything
An NRI who owns Indian property with a home loan gets the same deductions as a resident, they are not restricted by your residency. Under the old tax regime there are two. Interest on the loan is deductible under Section 24(b): if the house is treated as self-occupied the deduction is capped at ₹2 lakh a year, and if it is let out the full interest is deductible against the rent, with no cap on the interest itself. Separately, the principal you repay is deductible under Section 80C up to ₹1.5 lakh a year, though if you sell the house within five years of the end of the year you took possession, the principal deductions you claimed are added back to your income.
The catch is the new tax regime, which has been the default since the 2024-25 assessment year. Under it, a self-occupied house gets no Section 24(b) interest deduction at all, and Section 80C is not available, so both the ₹2 lakh interest and the ₹1.5 lakh principal simply vanish. Since the default is now the new regime, an NRI who wants those deductions has to actively opt for the old regime when filing. That single choice is worth up to ₹3.5 lakh of deductions, and it is the thing most people miss.
The let-out case, and pre-construction interest
For a let-out property the picture is better under the new regime but still limited, and the detail matters. The interest is deductible against the rental income even under the new regime. What changes is what happens if the interest is larger than the rent, leaving a loss under house property. Under the old regime you can set that loss off against your other income up to ₹2 lakh a year, under Section 71, and carry any balance forward for up to eight years against future house-property income. Under the new regime that loss cannot be set off against your other income at all in that year. It is worth being precise here, because it is often overstated: the let-out loss can still be carried forward against future house-property income, what you lose under the new regime is only the ability to set it off against your other income now.
One more piece often forgotten. Interest you paid while the property was under construction, before you got possession, is not lost. It is deductible in five equal annual instalments starting the year construction completes, and for a self-occupied house it counts within the same ₹2 lakh cap. For an NRI with a let-out flat that took years to build, that pre-construction interest can be significant. A practising CA works out which regime leaves you better off, claims the interest and principal correctly, and makes sure the pre-construction interest and any carried-forward loss are not left on the table.