Claiming Home Loan Interest Deduction Under Section 24(b) and Reporting It Accurately in Your ITR

Section 24(b) of the Income Tax Act, 1961, plays a crucial role in providing tax relief to individuals and Hindu Undivided Families (HUFs) who have availed home loans. It allows taxpayers to claim a deduction on the interest paid on home loans, providing significant financial relief, especially for those who have recently purchased or are constructing their homes. The primary objective of Section 24(b) is to encourage homeownership by making it financially easier for individuals to repay their home loans. This deduction is available under both the old and new tax regimes, making it a valuable benefit for taxpayers in the current financial landscape.

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Table of Contents

• What is Section 24(b)?

• Key Highlights for FY 2025-26

• Eligibility Criteria for Home Loan Interest Deduction

• Step-by-Step Guide to Claiming the Deduction in Your ITR

• Practical Tips to Maximize Your Tax Savings

• Conclusion

• FAQs

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What is Section 24(b)?

Section 24(b) of the Income Tax Act provides a deduction for the interest paid on loans taken for the purchase, construction, repair, or renovation of a residential property. This provision is designed to make homeownership more affordable by reducing the tax burden on individuals with home loans. The deduction is available for loans taken from financial institutions like banks, housing finance companies, or even from employers under certain conditions.

Under Section 24(b), individuals are allowed to claim a deduction of up to ₹2,00,000 per year on the interest paid on home loans for self-occupied properties. For properties that are let out or deemed to be let out, the entire interest amount paid can be claimed as a deduction, without any upper limit, subject to certain conditions.

Key Highlights for FY 2025-26

• Self-Occupied Property:

  1. For self-occupied properties, taxpayers can claim a deduction of up to ₹2,00,000 on the interest paid on home loans under Section 24(b).

  2. If the loan is taken for the construction or purchase of the property, the deduction is available once the construction is completed or possession is taken.
     

• Let-Out Properties:

  1. For properties that are rented out, the entire interest paid on the home loan is eligible for deduction, with no cap on the amount.

  2. This can significantly reduce taxable income for individuals owning multiple properties.
     

• Interest on Pre-Construction Loan:

  1. If the loan is for the construction of the property, the interest paid during the pre-construction period is not eligible for deduction in the year it is paid. However, the interest can be claimed in equal installments for a maximum of 5 years, starting from the year in which the construction is completed.
     

• Maximum Deduction:

  1. A maximum deduction of ₹2,00,000 is allowed under Section 24(b) for interest paid on loans for self-occupied properties.
     

• Co-Ownership:

  1. In cases where multiple individuals are co-owners of the property, each owner can claim a deduction for the interest paid, up to ₹2,00,000, provided they fulfill all other conditions.

Eligibility Criteria for Home Loan Interest Deduction

To claim the deduction under Section 24(b), you need to meet the following eligibility criteria:

• Home Loan:

  1. The deduction is available only on loans taken from recognized financial institutions, such as banks or housing finance companies, or loans provided by an employer.

  2. The loan should be for the purpose of purchasing, constructing, repairing, or renovating a residential property.
     

• Residential Property:

  1. The property for which the loan is taken must be a residential property, and it must be either self-occupied or let-out.
     

• Ownership:

  1. The taxpayer must be the legal owner of the property, and the loan must be in the name of the taxpayer or co-owners, if applicable.
     

• Interest Payment:

  1. The interest on the home loan must have been paid during the financial year to claim the deduction. The payment must be supported by evidence such as bank statements or interest certificates from the lending institution.
     

• Pre-Construction Interest:

  1. If claiming the interest during the pre-construction phase, the property should have been completed and possession should have been taken within five years from the date of the loan.

Step-by-Step Guide to Claiming the Deduction in Your ITR

Here’s how you can claim the home loan interest deduction under Section 24(b) in your Income Tax Return (ITR) for FY 2025-26:

• Gather Documents:

  1. Collect the interest certificate from your bank or lender that outlines the interest paid during the financial year. Also, gather documents that confirm the completion or possession of the property.
     

• Calculate the Deduction:

  1. Determine the amount of interest paid on the home loan during the year. If the property is self-occupied, the maximum deduction you can claim is ₹2,00,000. For let-out properties, claim the full amount of interest paid.
     

• Fill in the ITR:

  1. In the ITR form, navigate to the section for "Income from House Property." Under this section, enter the details of the loan and the interest paid.

  2. For self-occupied properties, you can enter the interest deduction up to ₹2,00,000. For let-out properties, enter the full interest paid.
     

• Claim Pre-Construction Interest:

  1. If your home loan was for construction, and you have pre-construction interest, you can claim it in equal installments for the next five years, starting from the year the construction is completed.
     

• Review and Submit:

  1. Once the information is correctly filled out, review your ITR to ensure everything is accurate. Submit your return electronically, and the deduction will be automatically processed along with the rest of your ITR.

Practical Tips to Maximize Your Tax Savings

• Consider Co-Ownership:

  1. If you have a joint loan with a co-owner, each of you can claim the interest deduction separately, potentially doubling the benefit if both are eligible for the full ₹2,00,000 limit.
     

• Use the Pre-Construction Interest Deduction:

  1. If you have a pre-construction loan, remember that you can claim the interest paid during the construction period in equal installments over the next five years. Make sure to track the interest paid during the construction phase to maximize your deductions.
     

• Optimize Your Property Type:

  1. If you own multiple properties, consider renting out one or more of them to claim the full interest deduction. For let-out properties, there’s no cap on the interest deduction.
     

• Plan for the Future:

  1. If you're planning to purchase or construct a new property in the future, make sure to explore home loan options early in the financial year to benefit from tax deductions throughout the year.

Conclusion

Section 24(b) offers significant tax relief by allowing deductions on the interest paid on home loans. By understanding the eligibility criteria and following the proper steps to claim the deduction, you can reduce your tax liability and maximize your savings. Whether you are a first-time homebuyer or an investor, utilizing Section 24(b) effectively can provide substantial financial benefits. Be sure to maintain proper records of your loan payments and consult a tax professional to ensure you are claiming the maximum allowable deduction.

Frequently Asked Question (FAQs)

Q1: Can I claim a deduction on both principal and interest payments under Section 24(b)?

No, under Section 24(b) of the Income Tax Act, only the interest paid on home loans is eligible for deduction. The principal repayment of a home loan is eligible for deduction under Section 80C. While both are tax-saving benefits, they apply under different sections with separate limits. Interest on home loans can be claimed up to ₹2,00,000 per annum for self-occupied properties, whereas principal repayment can be claimed under Section 80C up to ₹1,50,000.

Q2: Can I claim the home loan interest deduction for a second home?

Yes, the deduction for interest paid on a home loan is applicable for both the first and second homes, whether they are self-occupied or rented out. There is no cap on the interest you can claim for a let-out property, but for a self-occupied property, the maximum deduction is ₹2,00,000. For a second home, if it’s self-occupied, the ₹2,00,000 limit still applies. If the second home is let out, you can claim the entire interest paid without any upper limit.

Q3: Is there a maximum limit for the interest deduction on a home loan?

Yes, for a self-occupied property, the maximum deduction for home loan interest under Section 24(b) is ₹2,00,000 per year. For a let-out property, there is no upper limit for claiming the interest paid on the home loan. You can claim the entire amount of interest paid during the financial year. However, the property must be rented out, and the rent should be received or receivable to qualify for this deduction.

Q4: How does the pre-construction interest deduction work?

Interest paid during the pre-construction period is not deductible immediately under Section 24(b). However, it can be claimed in equal installments over the next five years, starting from the year when the construction of the property is completed. These installments are added to the home loan interest deduction limit of ₹2,00,000 for a self-occupied property. For let-out properties, the full interest can be claimed once the construction is completed and possession is taken.

Q5: Can I claim interest on a loan taken from friends or family?

No, for claiming a home loan interest deduction under Section 24(b), the loan must be obtained from a recognized financial institution such as a bank, housing finance company, or any other financial institution authorized by the government. Loans taken from friends, relatives, or family members do not qualify for this deduction.

Q6: What if I miss claiming the deduction in the current year?

If you miss claiming the home loan interest deduction in the current year, you can still file a revised return under Section 139(5) within the assessment year to include the missed deduction. This allows you to correct any errors or omissions in your original ITR. However, the revised return must be filed before the end of the assessment year.

Q7: Can I claim the deduction if I have a home loan for commercial property?

No, the home loan interest deduction under Section 24(b) is available only for loans taken for residential properties. If you have taken a loan for commercial or business properties, you cannot claim this deduction. However, you may be able to claim deductions for business-related loans under different provisions, depending on the nature of the property and its use.

Q8: Does the home loan interest deduction apply to rented properties?

Yes, if you have a rented (let-out) property, you can claim the full interest amount paid on the home loan under Section 24(b). Unlike self-occupied properties, there is no cap on the deduction for a let-out property. The interest is deducted from your rental income, thus reducing the taxable income.

Q9: Do I need to submit the loan documents with my ITR?

No, you do not need to submit your loan documents, such as the loan agreement or payment receipts, along with your Income Tax Return (ITR). However, you must maintain these documents for record-keeping purposes, as the Income Tax Department may ask for them in case of verification or an audit. It is essential to have proof of the interest paid and the amount claimed as a deduction.

Q10: Can I claim this deduction if my property is still under construction?

Yes, you can claim the pre-construction interest deduction once the construction is completed and possession is taken. The interest paid during the construction period can be claimed in equal installments over the next five years. These installments will be added to the overall interest deduction for the self-occupied or let-out property, based on the property’s status.

Q11: Can I claim the deduction on interest paid for a second home loan in the same year?

Yes, if you have loans on both your first and second homes, you can claim the interest paid for both loans, subject to the limits of Section 24(b). For a self-occupied property, the maximum limit is ₹2,00,000 in a financial year. If both homes are self-occupied, you can split the ₹2,00,000 limit between the two, but if the second property is let-out, there is no cap on the interest deduction.

Q12: Are there any restrictions on claiming home loan interest if the property is in joint ownership?

Yes, if the property is owned jointly, each co-owner can claim a deduction for the interest paid on the home loan, based on their share of the loan and the property. Each co-owner is eligible for a deduction of up to ₹2,00,000 for self-occupied properties, and there is no upper limit for let-out properties. The claim should be in proportion to the ownership and the loan repayment made by each individual.