Home Loan Tax Benefit: Claiming Section 24(b) for Interest Payments
- Dipali Waghmode
- Jul 24
- 9 min read
Section 24(b) of the Income Tax Act provides a significant tax benefit for individuals who have taken a home loan. It allows taxpayers to claim deductions on the interest paid on home loans, making home ownership more affordable by reducing the effective tax burden. This section is particularly useful for individuals paying EMIs for loans secured on residential property. It is a crucial aspect of tax planning, especially for those who have long-term financial commitments like home loans. Whether you are a first-time homebuyer or someone with an existing mortgage, understanding how Section 24(b) works can help you maximize your tax benefits and lower your overall tax liability.
Table of Contents:
What Is Section 24(b)?
Section 24(b) of the Income Tax Act offers a deduction for the interest paid on a home loan. This deduction is available to individuals who have taken a loan for the purchase, construction, repair, or renovation of a residential property. The provision allows taxpayers to deduct up to ₹2 lakh per year on the interest paid on home loans under specific conditions. It is designed to provide relief to individuals by reducing their taxable income based on the interest they pay on loans for their primary residence. This deduction is available to both self-occupied and let-out properties, though the treatment may differ slightly between the two.
Eligibility Criteria for Claiming Section 24(b) Deduction
To be eligible for the Section 24(b) deduction, the following conditions must be met:
Home Loan: The loan must be taken for the purpose of buying, constructing, or renovating a residential property. Loans for other purposes, such as for business or investment, are not eligible.
Interest Paid: The taxpayer must have paid interest on the loan during the financial year. The interest paid is eligible for deduction under Section 24(b), provided the loan is still active, and the property is not sold or transferred in the same year.
Self-Occupied or Rented Property: Section 24(b) applies to both self-occupied and rented properties. However, the deduction limit for self-occupied property is ₹2 lakh per year, whereas, for rented properties, the total interest deduction can be higher if the property is let out.
Residential Property: The deduction is only available on loans taken for residential property. If the property is commercial or used for business purposes, it does not qualify.
How to Claim the Section 24(b) Deduction
Claiming the Section 24(b) deduction is relatively straightforward. Here are the steps:
Determine the Interest Paid: The first step is to calculate the total interest paid during the year on the home loan. This can be obtained from the bank or financial institution where the loan was taken.
Filling the Tax Return: The deduction is claimed while filing the Income Tax Return (ITR). In the ITR form, you need to enter the details of the home loan and the interest paid. If the property is self-occupied, you would report the amount under the "Income from House Property" section.
Supporting Documents: While filing your tax return, you may be required to submit documents like the loan sanction letter, interest certificates from the bank, and proof of payment of EMIs. Ensure you keep all the necessary documents ready in case of a future audit.
Claiming the Deduction: The deduction is then applied directly to reduce your taxable income. For self-occupied properties, you can claim a maximum of ₹2 lakh, while for rented properties, the deduction can be higher depending on the interest paid.
Special Provisions & Tips for Maximizing the Benefit
Pre-Construction Interest: If your home loan is used for constructing or purchasing a new property, the interest paid during the pre-construction phase can also be claimed. This amount is added to the total loan interest and claimed as a deduction after the construction is completed.
Joint Home Loans: If you have taken a joint home loan, both co-borrowers can claim the deduction separately, provided each one is paying the interest and meets the eligibility criteria. This can effectively double the benefit.
Renovation Loans: If the loan is taken for home renovation, the deduction is available only for the interest paid on the loan. However, the principal repayment is not eligible for tax deductions under Section 24(b).
Interest on Loans for Second Homes: If you own more than one house, Section 24(b) can apply to both, but there is a difference in the deduction limit for self-occupied and let-out properties. Ensure you calculate the correct deduction limit based on the status of your properties.
Budget 2025: Proposed Changes to Section 24(b)
The Budget 2025 is expected to introduce several reforms aimed at increasing affordability for homeowners, especially first-time buyers. There may be potential increases in the ₹2 lakh cap for interest deduction under Section 24(b), along with a simplified process for applying for deductions. Furthermore, there might be a push for including loans taken for "green" homes—those that adhere to environmental and energy-efficient standards—in the scope of Section 24(b) deductions. The government may also consider a special tax relief for individuals in the affordable housing sector.
How Section 24(b) Works in the New Tax Regime
Under the new tax regime, which offers reduced tax rates but eliminates most exemptions and deductions, taxpayers cannot claim the Section 24(b) deduction. If you opt for the new tax regime, you will not be able to claim any home loan-related deductions, including the interest deduction under Section 24(b). However, you can still choose the old tax regime and continue enjoying the deduction if you find it more beneficial.
How Section 24(b) Works in the Old Tax Regime
In the old tax regime, the Section 24(b) deduction is available as a direct reduction from the taxpayer’s income under the "Income from House Property" section. This helps to lower the total taxable income, which ultimately reduces the tax payable. For taxpayers who have large home loan repayments, this deduction can be significant, especially when combined with other deductions like 80C, 80D, and 80E.
News & Recent Updates on Section 24(b)
The government is currently exploring the expansion of tax relief on home loans to boost the real estate sector and make homeownership more affordable. In recent years, there has been an increase in interest rates, leading to calls for higher limits on home loan interest deductions under Section 24(b). The government may also introduce provisions to help taxpayers who have loans for green homes or those purchasing homes in the affordable housing sector. Any changes in Section 24(b) are likely to be part of the annual budget proposals, and taxpayers should keep an eye on the developments.
Conclusion
Section 24(b) plays a crucial role in providing tax relief to homeowners by allowing them to deduct the interest paid on home loans from their taxable income. Whether you are a first-time homebuyer or someone with an existing mortgage, understanding this provision can significantly reduce your tax liability. By following the eligibility criteria and understanding the process of claiming the deduction, you can make the most of this benefit. Additionally, staying informed about proposed changes and updates to this section will help you adapt your tax planning strategies. Always ensure to keep track of all documentation and consider consulting a tax professional to optimize your tax benefits.
For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1: Can I claim the Section 24(b) deduction for both self-occupied and rented properties? Yes, you can claim the Section 24(b) deduction for both self-occupied and rented properties. For self-occupied properties, you can claim a deduction of up to ₹2 lakh per year on the interest paid on home loans. For rented properties, there is no cap on the interest deduction; the full amount of interest paid can be deducted, provided the interest is substantiated and the property is rented out.
Q2: How does Section 24(b) apply to joint home loans? In the case of joint home loans, both borrowers are eligible to claim the deduction for the interest paid on the loan, provided they meet the eligibility criteria and both contribute to the repayment of the loan. The total interest can be split between the borrowers based on the proportion of their respective contributions, with each claiming their share of the deduction, up to the maximum allowed under Section 24(b).
Q3: Can I claim the pre-construction interest on my home loan? Yes, you can claim the interest paid during the pre-construction period. However, this interest can only be claimed after the construction is completed. The total pre-construction interest paid can be added to the overall home loan interest and claimed in five equal installments, starting from the year the construction is completed.
Q4: Does Section 24(b) apply to loans for home renovations? Yes, Section 24(b) applies to loans taken for home renovations as well. However, only the interest paid on such loans is eligible for deduction, not the principal repayment. The interest on loans for renovation is deductible under the same rules as for new property purchases, subject to the ₹2 lakh limit for self-occupied properties and no cap for rented properties.
Q5: Is there a cap on the Section 24(b) deduction? Yes, there is a cap on the Section 24(b) deduction for self-occupied properties. The maximum deduction allowed is ₹2 lakh per annum on the interest paid on home loans. For rented properties, there is no upper limit for the interest deduction, though the total interest must be properly substantiated to ensure it is eligible for deduction.
Q6: What happens if I don’t claim the Section 24(b) deduction while filing my tax return? If you fail to claim the Section 24(b) deduction while filing your tax return, you will miss out on reducing your taxable income by the amount of interest paid on your home loan. This means you will end up paying more tax than necessary. You cannot claim the deduction in subsequent years, so it is important to ensure that it is correctly applied in the year the interest was paid.
Q7: Does the Section 24(b) deduction apply under both the old and new tax regimes? No, the Section 24(b) deduction is only available under the old tax regime. If you opt for the new tax regime, which offers lower tax rates without exemptions and deductions, you will lose out on the Section 24(b) deduction and other exemptions. Therefore, taxpayers need to choose between the two regimes based on which one provides the best benefit for their situation.
Q8: Can I claim Section 24(b) if I have a loan for a second home? Yes, you can claim the Section 24(b) deduction for the interest paid on loans for a second home, just as you would for your first home. However, the deduction will depend on whether the second property is self-occupied or rented. For self-occupied properties, the deduction is capped at ₹2 lakh, while for rented properties, the full interest paid can be deducted, subject to substantiation.
Q9: Can I claim Section 24(b) if the property is used for business purposes? No, the Section 24(b) deduction applies only to residential properties. If the property is used for business purposes, the interest on the loan is not eligible for deduction under Section 24(b). In such cases, businesses can claim the interest as a business expense under Section 37 or Section 28, depending on the nature of the property.
Q10: How does the interest deduction under Section 24(b) affect my tax payable? The interest paid on home loans is deducted from your taxable income, which reduces your overall tax liability. The higher the interest paid on your home loan, the greater the potential reduction in your taxable income. This, in turn, lowers the amount of tax you owe, providing significant savings, especially for those with substantial home loan interest payments.
Q11: Is there a provision for claiming deductions if the loan is for buying a plot? No, Section 24(b) only allows deductions on loans used for purchasing, constructing, or renovating residential property. Loans taken to buy land or plots are not eligible for deduction under this section. However, if you use the land or plot for constructing a residential property in the future, you may be able to claim the interest deduction once the construction is completed.
Q12: What should I do if my home loan interest exceeds ₹2 lakh? If the interest on your home loan exceeds ₹2 lakh (in the case of a self-occupied property), you can only claim up to ₹2 lakh under Section 24(b). However, if the property is rented out, there is no cap on the amount you can claim, and the full interest amount can be deducted. Ensure that the interest is properly substantiated to claim the full amount for rented properties.
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