This is a step by step guide to create a new user and restrict the user to his home directory.
1. Create a new user
sudo adduser TestUser
2. Change the ownership of TestUser’s home directory to root.
sudo chown root:root /home/TestUser
3. Edit the ssh config file
sudo vim /etc/ssh/sshd_config
and add the following lines to it:
Match user TestUser ChrootDirectory /home/TestUser AllowTcpForwarding no ForceCommand internal-sftp
4. Restart SSH Service
sudo service ssh restart
Now, try logging in as the TestUser.
Hope it helps!