Section 24(b): Home Loan Interest Deduction Explained
- Rajesh Kumar Kar
- Nov 7
- 9 min read
Updated: Nov 25
Section 24(b) of the Income Tax Act, 1961 allows taxpayers to claim deductions on the interest paid for home loans taken to purchase, construct, repair, or renovate residential properties. It provides substantial relief for homeowners by reducing taxable income through interest deductions, subject to specific limits and eligibility conditions. For self-occupied houses, the maximum deduction is ₹2,00,000 per year, while for rented properties, there is no upper limit. This section plays a key role in balancing tax liability and home ownership costs for individuals.
Table of Contents
Understanding Section 24(b) – Overview and Key Provisions
Section 24(b) of the Income Tax Act, 1961 provides a deduction on the interest paid on home loans taken for the purchase, construction, repair, or renovation of residential properties. This provision helps taxpayers reduce their taxable income, thereby easing the financial burden of home ownership. The deduction applies to both self-occupied and rented properties, though with different limits. The loan must be taken from a recognized financial institution or approved lender, and the construction or purchase should be completed within five years from the end of the financial year in which the loan was sanctioned.
Eligibility Criteria for Claiming Home Loan Interest Deduction
To qualify for the deduction under Section 24(b), the taxpayer must be the legal owner of the property and the loan borrower. The loan must be availed from an approved financial institution, bank, or recognized non-banking financial company. It is essential that the borrowed funds are used exclusively for purchasing, constructing, repairing, or renovating a house property. Additionally, the construction or acquisition should be completed within five years from the end of the financial year in which the loan was taken. Pre-construction interest can also be claimed, subject to specific conditions.
Purpose of Loan under Section 24(b)
The loan must be utilized for legitimate housing purposes such as purchasing a new home, constructing a house on owned land, or carrying out repairs and renovations on an existing property. Loans taken for any purpose other than the acquisition, construction, or improvement of residential property will not qualify for the deduction. It is also important that the taxpayer maintains proper documentation and can substantiate the purpose of the loan with invoices, receipts, or other records if required.
Deduction Limits for Self-Occupied and Rented Properties
For self-occupied properties, the maximum deduction on the interest paid on a home loan is ₹2,00,000 per financial year. This limit applies only when the loan is taken for acquisition or construction of the property and completed within the stipulated five-year period. However, for rented or deemed-to-be-rented properties, there is no upper cap on the interest deduction. Still, the total loss that can be adjusted against other heads of income in a financial year is restricted to ₹2,00,000, with the balance carried forward for up to eight assessment years.
Is Section 24(b) Deduction Allowed in the New Tax Regime?
Under the new tax regime, most exemptions and deductions available under the old regime, including Section 24(b) for self-occupied homes, have been withdrawn. However, taxpayers can still claim the deduction if the property is rented out, as rental income continues to be taxable under “Income from House Property.” This distinction is crucial for deciding between the old and new regimes, depending on the taxpayer’s income composition and property status.
How Section 24(b) Works in the Old Tax Regime
In the old tax regime, taxpayers can claim the Section 24(b) deduction for both self-occupied and rented properties. The ₹2,00,000 limit for self-occupied homes applies to the interest paid on a loan used for construction or purchase, while the entire interest amount can be claimed for rented properties, subject to the ₹2,00,000 set-off limit against other income. This regime benefits those who have significant home loan interest payments and multiple deductions like Section 80C and 80EEA.
Conditions and Documentation Required for Claiming the Deduction
To successfully claim the deduction under Section 24(b), taxpayers are required to maintain proper documentation that serves as proof of eligibility and ensures compliance with the Income Tax Act. The accuracy and completeness of these documents play a crucial role in substantiating the claim during return filing or any subsequent assessment by tax authorities.
The first and most important document is the loan sanction letter issued by the bank or financial institution. This letter confirms the purpose of the loan, the amount sanctioned, and the date of disbursement. It acts as the primary evidence that the loan was availed from an approved lender for acquiring, constructing, or renovating a residential property.
Next, the interest certificate is required to support the deduction claim. This certificate, issued annually by the lender, provides a detailed breakup of the total amount repaid during the financial year, clearly distinguishing between the principal and interest components. The interest portion mentioned in this certificate is the amount eligible for deduction under Section 24(b).
Proof of property ownership is also essential, as the deduction can only be claimed by the person who legally owns the property and is responsible for repaying the loan. Documents such as the registered sale deed, allotment letter, or possession certificate serve as valid proof of ownership. In cases where the property is under construction, the builder’s possession or completion certificate may be used once construction is completed.
For properties that are newly constructed, a construction completion certificate is mandatory. This certificate, usually issued by the municipal authority, local development authority, or builder, serves as confirmation that the property has been completed within the prescribed five-year period from the end of the financial year in which the loan was taken. Without this document, the taxpayer’s deduction claim may be restricted or disallowed.
If the taxpayer wishes to claim interest paid during the pre-construction period, receipts for pre-construction interest must be maintained. The total pre-construction interest can be claimed in five equal annual installments beginning from the year in which the construction is completed or the property is acquired. Maintaining receipts and lender confirmations for such payments ensures proper verification during scrutiny.
All these documents should be preserved carefully as part of the taxpayer’s financial records. They may be requested by the tax department for verification in case of a query, audit, or scrutiny assessment. Ensuring that every document is accurate, updated, and easily accessible not only strengthens the deduction claim but also prevents unnecessary delays or disputes during tax filing and assessment.
Common Errors and How to Avoid Disallowance
Taxpayers often make mistakes such as claiming interest on personal loans, loans from relatives, or unrecognized lenders, which do not qualify under Section 24(b). Another common error is claiming deductions before the property’s construction is complete. The deduction is permissible only from the year in which construction or acquisition is completed. Maintaining clear records and verifying that the lender is an approved institution helps avoid disallowance.
Reporting Section 24(b) Deductions in the Income Tax Return (ITR)
While filing the ITR, taxpayers must report the deduction under the “Income from House Property” section. For self-occupied properties, the interest amount is shown as a negative figure to reflect the deduction. In the case of rented properties, the net rental income is calculated after deducting the interest paid. Accurate reporting ensures that the deduction is appropriately reflected and helps avoid mismatches during return processing.
Role of TaxBuddy in Claiming Section 24(b) Deductions Accurately
TaxBuddy simplifies the process of claiming deductions under Section 24(b) through its intelligent automation system. The platform auto-fetches Form 16 data, interest certificates, and pre-fills relevant fields, ensuring that taxpayers do not miss eligible deductions. It also performs real-time validation to prevent disallowance due to errors or omissions. By using TaxBuddy, individuals can ensure error-free and compliant tax filings, maximizing the benefits available under Section 24(b).
Example Calculation of Deduction under Section 24(b)
Consider a taxpayer who pays ₹2,50,000 as interest on a home loan for a self-occupied property. Under Section 24(b), they can claim a deduction of ₹2,00,000. If the same property were rented out, the entire ₹2,50,000 interest could be deducted from the rental income, with a maximum of ₹2,00,000 loss set-off allowed against other income sources. The remaining ₹50,000 can be carried forward for up to eight years.
Conclusion
Section 24(b) serves as an effective tax-saving tool for homeowners by reducing the burden of interest payments on housing loans. Taxpayers must carefully assess whether to opt for the old or new tax regime based on their eligibility for deductions. Proper documentation, timely filing, and accurate reporting are crucial to availing this benefit without disallowance. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides both self-filing and expert-assisted plans. The self-filing option is ideal for individuals with straightforward income sources such as salary or pension, allowing them to file easily using AI-guided steps. The expert-assisted plan is best suited for taxpayers with complex income sources like multiple properties, capital gains, or business income, where professionals review and file the return to ensure accuracy and compliance.
Q2. Which is the best site to file ITR?
While the official Income Tax Department portal (incometax.gov.in) is the government’s statutory platform, private platforms like TaxBuddy offer a smoother and more intuitive experience. TaxBuddy’s system integrates AI-driven checks, prefilled data import, and professional review options, ensuring faster and more accurate ITR filing without manual errors.
Q3. Where to file an income tax return?
Income tax returns can be filed through two primary modes: directly on the government portal (incometax.gov.in) or through authorized intermediaries such as TaxBuddy. Filing through TaxBuddy is beneficial as it automates data entry, verifies errors in real time, and assists users with deductions like Section 24(b), making the process more efficient and secure.
Q4. Can I claim home loan interest deduction if my home is self-occupied?
Yes. If the property is self-occupied, the maximum deduction on the interest paid for a home loan is ₹2,00,000 per year under Section 24(b). This applies only if the loan is taken for purchase or construction and completed within five years from the end of the financial year in which the loan was sanctioned. Pre-construction interest can also be claimed in equal installments over five years after completion.
Q5. Is there a limit on interest deduction for rented properties?
There is no upper limit on the deduction of home loan interest for rented properties under Section 24(b). However, the loss from house property that can be set off against income from other sources (like salary or business) is capped at ₹2,00,000 in a financial year. Any remaining loss can be carried forward for up to eight assessment years and adjusted against future income from house property.
Q6. Can I claim interest on loans from non-banking lenders?
Yes, deductions under Section 24(b) are allowed for loans taken from recognized Non-Banking Financial Companies (NBFCs) or approved housing finance institutions, provided the funds are used for acquiring, constructing, or renovating residential property. However, loans from friends, relatives, or unregistered moneylenders are not eligible for this deduction.
Q7. Is Section 24(b) deduction available under the new tax regime?
Under the new tax regime introduced in Budget 2025, most deductions, including Section 24(b), are not available for self-occupied properties. The only exception applies to properties that are rented out, where the deduction is allowed against rental income. Taxpayers opting for the new regime should calculate the overall tax impact before choosing between the old and new structures.
Q8. What documents are required to claim the deduction?
To claim the deduction under Section 24(b), the following documents are essential:
Loan sanction letter from the bank or housing finance company
Interest certificate for the financial year from the lender
Proof of property ownership (sale deed or possession certificate)
Completion certificate if the property is newly constructed
Receipts for pre-construction interest (if applicable) These documents serve as evidence during tax assessments and ensure compliance with income tax regulations.
Q9. Can both spouses claim deduction on a joint home loan?
Yes, if both spouses are co-owners of the property and co-borrowers of the loan, each can claim a deduction up to ₹2,00,000 on the interest component, subject to their individual share in ownership and repayment. The deduction is available only if both are paying from their respective incomes. This allows families to optimize tax benefits effectively.
Q10. What happens if the construction is delayed beyond five years?
If the construction or acquisition of the property is not completed within five years from the end of the financial year in which the loan was taken, the deduction limit for interest is reduced from ₹2,00,000 to ₹30,000. This emphasizes the importance of monitoring project timelines and ensuring timely possession for maximizing tax benefits.
Q11. How can losses from house property be adjusted under Section 24(b)?
Loss from house property (mainly due to interest paid exceeding rental income) can be adjusted against income from other heads, such as salary or business, up to ₹2,00,000 in a financial year. Any remaining unadjusted loss can be carried forward for up to eight years and offset against future income from house property. This helps taxpayers manage their tax burden strategically over time.
Q12. How does TaxBuddy simplify filing with Section 24(b) deductions?
TaxBuddy simplifies tax filing by automatically identifying eligible deductions, including those under Section 24(b). It imports data from Form 16, interest certificates, and bank records, ensuring accurate reporting. The platform’s AI-driven system validates entries to prevent errors and maximizes deduction claims. With the TaxBuddy mobile app, users can easily manage documents, review deductions, and file returns securely in just a few steps.
