Section 24B and Home Loan Interest – Fully Explained
- Bhavika Rajput
- 5 hours ago
- 9 min read
Section 24B allows taxpayers to claim deductions on interest paid for home loans under the Income Tax Act, reducing taxable income for FY 2024-25. For self-occupied properties, individuals can claim a deduction of up to ₹2 lakh on interest paid, while for rented properties, there is no such limit. Taxpayers must understand eligibility criteria, calculation methods, and documentation requirements to ensure full compliance and maximize savings. Platforms like TaxBuddy provide seamless filing, auto-calculation of deductions, and reminders, helping taxpayers avoid errors while claiming home loan interest. Proper knowledge of Section 24B can significantly impact overall tax liability.
Table of Contents
Understanding Section 24B
Section 24B specifically allows a deduction for interest paid on home loans for self-occupied or rented residential properties. The deduction reduces taxable income and is part of the broader framework of housing-related tax benefits under the Income Tax Act. It is applicable to loans taken from banks, housing finance companies, or any approved financial institution.
How Home Loan Interest Deduction Works
When a taxpayer takes a home loan, each EMI (Equated Monthly Installment) paid toward the loan is divided into two components: principal repayment and interest payment. The principal portion reduces the outstanding loan amount, while the interest portion represents the cost of borrowing. Under Section 24B of the Income Tax Act, taxpayers can claim a deduction on the interest paid on a home loan, which is subtracted from their taxable income. This directly reduces the total taxable amount, resulting in lower overall tax liability. For example, if a taxpayer pays ₹2,00,000 as interest in a financial year, this amount can be deducted from their gross total income, thereby reducing the tax payable. This deduction is applicable for both self-occupied and rented properties, although the maximum limits and conditions vary depending on the property type and occupancy status.
Claiming this deduction not only provides immediate tax relief but also encourages home ownership by making home loans more affordable through reduced tax liability over the loan tenure.
Eligibility Criteria for Claiming Section 24B
To claim the interest deduction under Section 24B, certain conditions must be met:
The home loan must be taken specifically for the purpose of purchasing, constructing, or repairing a residential property. Loans used for other purposes, such as investment in commercial property or personal expenses, do not qualify.
The taxpayer claiming the deduction must be the actual owner of the property for which the loan is taken. This ensures that only those directly benefiting from the property’s ownership and use are eligible for tax relief.
The interest on the home loan must be paid within the financial year for which the deduction is claimed. Any unpaid interest cannot be carried forward or claimed retroactively for past years.
In the case of self-occupied properties, the construction or purchase of the property must be completed within five years from the end of the financial year in which the loan was sanctioned. This rule prevents indefinite tax benefits and ensures that the deduction applies to genuine residential purposes.
By meeting these criteria, taxpayers can maximize the tax benefits of their home loan while remaining fully compliant with the Income Tax provisions.
Maximum Deduction Allowed under Section 24B
Section 24B of the Income Tax Act provides taxpayers with the benefit of claiming a deduction on the interest paid on home loans. This deduction helps reduce taxable income, making homeownership more financially manageable. The rules vary depending on whether the property is self-occupied or rented.
For self-occupied properties, the maximum deduction allowed on home loan interest is limited to ₹2,00,000 per financial year. This means that even if the interest paid exceeds this amount, the deduction claim cannot go beyond ₹2,00,000. This limit is applicable to each individual property and is particularly useful for salaried taxpayers or individuals with moderate home loan interest payments.
In the case of rented properties, the rules are more flexible. There is no monetary ceiling on the deduction, which means that the entire interest paid on the home loan can be claimed as a deduction. This allows landlords to reduce their taxable income significantly, especially if the interest amount is high, providing a substantial tax-saving opportunity.
How to Claim Home Loan Interest in the Old Tax Regime
Under the old tax regime, taxpayers can combine the Section 24B deduction with other eligible deductions such as those under Section 80C, 80D, and other provisions, maximising the overall tax benefit. To claim the interest paid on a home loan, taxpayers need to report the relevant figures in their Income Tax Return (ITR). Supporting documentation is essential for this process, typically in the form of an interest certificate issued by the bank or lender. This certificate specifies the total interest paid during the financial year, ensuring that the claim is accurate and can withstand scrutiny in case of any verification by the Income Tax Department.
This structured approach ensures that taxpayers can fully utilize the available deductions while maintaining compliance with all reporting requirements under the old tax regime.
Is Home Loan Interest Deduction Allowed in New Tax Regime?
In the new tax regime, taxpayers cannot claim most deductions, including Section 24B, unless the property is rented out. Homeowners who opt for the new regime will not get the interest deduction for self-occupied properties, which can impact their overall tax planning.
TaxBuddy Simplifies Filing Home Loan Interest Deductions
Platforms like TaxBuddy make claiming home loan interest deductions easy. TaxBuddy auto-matches Form 16, captures interest details from bank certificates, and ensures accurate reporting under Section 24B. This reduces errors, simplifies filing, and ensures maximum allowable deductions are claimed.
Common Mistakes While Claiming Section 24B
Claiming interest on loans not sanctioned by approved financial institutions is one of the most frequent mistakes taxpayers make under Section 24B. The Income Tax Act specifically allows deductions on home loan interest only if the loan has been sanctioned by recognised banks, financial institutions, or approved housing finance companies. Individuals sometimes assume that any personal loan or informal loan taken for property purchase qualifies for this deduction. Filing a claim on loans from unapproved sources can lead to disallowance during assessment and may attract notices from the Income Tax Department.
Another common error occurs when reporting interest without the proper certificates from banks or lenders. Banks and financial institutions provide annual interest certificates specifying the interest paid during the financial year. Taxpayers occasionally overlook these certificates or report an incorrect amount, leading to mismatches with the data available to the Income Tax Department. Such errors can trigger notices and delays in processing deductions.
Many taxpayers also attempt to claim deductions on properties under construction beyond the five-year completion window. Section 24B allows interest deductions for under-construction properties only until the property is completed or up to a maximum period of five years from the end of the financial year in which the loan was taken, whichever is earlier. Claims beyond this period are invalid and can be disallowed.
Finally, a frequent source of confusion is mixing up principal repayment with interest payments. Section 24B specifically covers interest on home loans, not the principal portion of the repayment. While principal repayments may qualify for deduction under Section 80C, including them under Section 24B is a mistake that can lead to discrepancies in your ITR and possible scrutiny by the Income Tax Department.
Step-by-Step Process to Claim Home Loan Interest Deduction
Claiming a home loan interest deduction is an important step for homeowners to reduce their taxable income. The first step is to collect the home loan interest certificate from the bank or lender. This certificate provides a detailed breakdown of the total interest paid during the financial year and is a critical document for accurate filing.
Next, verify the interest amount mentioned in the certificate against your bank statements to ensure there are no discrepancies. Accurate verification is essential because any mismatch could trigger scrutiny or delay the processing of your tax return.
After verification, determine whether the property for which the loan was taken is self-occupied or rented out. This distinction is crucial because the allowable deduction for self-occupied properties differs from that for rented properties. For self-occupied properties, the maximum interest deduction under Section 24(b) is generally ₹2,00,000 per year, whereas for rented properties, there is no such limit, and interest can be fully claimed against rental income.
Once the type of property is determined, enter the interest paid in the relevant section of your Income Tax Return. Ensure that the entry matches the figures from your bank certificate and aligns with the maximum permissible limit. Reviewing all calculations carefully helps prevent errors and ensures that the total deductions claimed, including other eligible deductions, do not exceed statutory limits.
Finally, file the ITR using a reliable platform such as TaxBuddy. Using an automated and expert-assisted platform ensures compliance with the latest tax regulations, reduces the chance of errors, and facilitates smooth submission. TaxBuddy’s interface allows taxpayers to seamlessly enter home loan details, verify deductions, and file returns efficiently.
Additional Tax Benefits on Home Loans
Homeowners can also benefit from deductions on the principal repayment portion of the loan under Section 80C. This deduction is capped at ₹1,50,000 per year and is part of the overall 80C limit that includes other investments like life insurance premiums, PPF contributions, and ELSS.
First-time homebuyers may be eligible for additional deductions under Section 80EE or 80EEA, subject to specific criteria such as the value of the property, loan amount, and date of loan sanction. These additional benefits are designed to encourage new home ownership and can significantly enhance tax savings.
By combining the deductions on both principal and interest payments, homeowners can achieve substantial tax relief. Proper planning and accurate filing ensure that these deductions are fully utilised, optimising overall tax liability and providing tangible financial benefits throughout the tenure of the home loan.
Conclusion
Claiming home loan interest deductions under Section 24B is an effective way to reduce tax liability and optimise financial planning. Careful compliance with eligibility criteria and accurate reporting ensures maximum benefits while avoiding scrutiny. Platforms like TaxBuddy simplify the process, guiding taxpayers through auto-matching forms, validating interest certificates, and ensuring proper filing. 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. Can I claim Section 24B deduction on a home loan for a property under construction?
Yes, you can claim a deduction on interest paid for a home loan on a property under construction. However, under Section 24B, the deduction for interest on a property still under construction is allowed only after the construction is completed, or for interest paid in pre-construction years, it can be claimed in five equal instalments starting from the year of completion. Pre-EMI interest payments made before possession are also included in this calculation.
Q2. What is the maximum deduction allowed for self-occupied and rented properties?
For a self-occupied property, Section 24B allows a maximum deduction of ₹2 lakh per financial year on home loan interest. For rented properties, there is no monetary limit; the entire interest paid can be claimed as a deduction from rental income, subject to conditions under the Income Tax Act.
Q3. Is home loan interest deduction available in the new tax regime?
No, under the new tax regime, most deductions, including Section 24B are not available. Taxpayers must opt for the old tax regime to claim interest on home loans, along with other eligible deductions like Section 80C, 80D, and 80EEA.
Q4. Can I claim interest on loans taken from non-banking lenders?
Yes, interest paid to non-banking financial institutions or private lenders qualifies for deduction under Section 24B, provided the loan is for purchasing, constructing, or renovating a residential property. Proper loan agreements and interest payment records are essential for claiming the deduction.
Q5. How do I report home loan interest in ITR?
Home loan interest is reported under ‘Income from House Property’ in your Income Tax Return. For self-occupied properties, enter the interest under Section 24B, and for rented properties, deduct the interest from rental income before calculating net taxable income.
Q6. What documents are needed to claim Section 24B?
To claim the deduction, keep the following documents ready:
Home loan sanction letter
Loan account statements showing interest paid
Certificate from the lender (Form 16/Interest Certificate)
Possession certificate or agreement with the builder, if applicable
Q7. Can principal repayment be claimed along with interest deduction?
Yes, principal repayment is claimed separately under Section 80C, with a maximum limit of ₹1.5 lakh per financial year, while interest is claimed under Section 24B. Both can be claimed simultaneously if you are under the old tax regime.
Q8. Is there a limit on claiming interest for multiple properties?
For self-occupied properties, interest deduction is limited to ₹2 lakh per year, regardless of the number of loans. For rented properties, interest can be fully claimed for each property against the respective rental income. Proper documentation for each loan is required.
Q9. What happens if I miss claiming the deduction in one financial year?
If you miss claiming Section 24B deduction in a financial year, you can file a revised return within the allowed timeline. If the return window has closed, the deduction cannot be claimed retroactively.
Q10. Can I claim deductions for a second home?
Yes, interest paid on a loan for a second property is deductible only if it is rented out, as self-occupied property deduction applies to one property at a time. Ensure the property is actively rented and rental income is declared.
Q11. How does TaxBuddy help in claiming home loan interest?
TaxBuddy’s platform simplifies the process of claiming home loan interest by allowing you to auto-fill details from Form 16, Form 26AS, or lender statements, accurately calculating eligible deductions, and ensuring compliance with Section 24B. The platform also supports both self-filing and expert-assisted filing for error-free ITR submission.
Q12. Are pre-EMI interest payments eligible for deduction?
Yes, pre-EMI interest paid during the construction phase can be claimed. The total pre-construction interest is allowed as a deduction in five equal installments starting from the year the property is completed. Proper records of pre-EMI payments are necessary to claim this benefit.
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