How to Claim Tax Benefits for Home Loan Interest Under Section 24(b) and Avoid Tax Notices

For homeowners, the Home Loan Interest Deduction under Section 24(b) of the Income Tax Act is a valuable benefit that can reduce taxable income significantly. This section allows taxpayers to claim a deduction on the interest paid on loans taken for purchasing or constructing a residential property. The provision is highly beneficial, especially for those who have substantial home loan liabilities. Understanding how to claim this deduction, the best practices to avoid errors, and how to handle any potential tax audits is crucial for maximizing tax savings and ensuring compliance. Let us explore the specifics of Section 24(b), explains how to claim the deduction, and discusses how to manage tax audits related to home loan claims, particularly for freelancers and self-employed individuals.

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Table of Contents

• Section 24(b): Home Loan Interest Deduction Explained

• How to Claim the Deduction

• Avoiding Tax Notices: Best Practices

• Handling Section 142(2A) Tax Audits for Freelancers and Self-Employed

• Addressing Questions on Home Loan Deduction Claims

• Conclusion

• FAQs

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Section 24(b): Home Loan Interest Deduction Explained

Section 24(b) of the Income Tax Act provides taxpayers with the ability to claim a deduction of up to ₹2 lakh per year on the interest paid on home loans taken for the purchase, construction, repair, or renovation of a house property. The deduction is applicable to both self-occupied and rented properties, with some specific rules applying to each case.

• Self-Occupied Property: If the property is self-occupied, the maximum deduction for interest paid on the home loan is ₹2 lakh. The deduction is available irrespective of the size or cost of the property, as long as it qualifies as the taxpayer’s self-occupied residence.
  

• Let-Out Property: For properties that are rented out, there is no upper limit to the deduction on interest. The entire interest paid on the home loan can be claimed as a deduction from rental income, subject to certain conditions.

The deduction under Section 24(b) is available only on the interest portion of the loan repayment, not the principal repayment, which is covered under Section 80C.

How to Claim the Deduction

Claiming the home loan interest deduction under Section 24(b) is a straightforward process, but it requires careful documentation and reporting to ensure the deduction is allowed:

• Loan Statement: Ensure you have a loan statement from your lender (bank or financial institution) that clearly mentions the interest portion of the repayment. This is essential for claiming the deduction.
  

• ITR Filing: When filing your Income Tax Return (ITR), ensure that you report the interest paid on the home loan under the section "Income from House Property" (if applicable) or "Deductions under Chapter VI-A" for self-occupied properties.
  

• Supporting Documents: You may need to submit supporting documents, such as a certificate from the lender confirming the interest paid, along with any other documents required by the tax authorities.
  

• Timing of the Claim: The interest deduction is available for the financial year in which the interest is paid, not necessarily when the loan was taken. So, ensure to claim it in the corresponding ITR for the relevant assessment year.

Avoiding Tax Notices: Best Practices

Claiming the home loan interest deduction under Section 24(b) of the Income Tax Act is an effective way to reduce taxable income, but taxpayers must ensure they follow best practices to avoid scrutiny or tax notices from the authorities. A mistake in claiming the deduction or failing to meet the eligibility criteria can result in rejection of the claim and may even trigger a tax audit or notice. Here are some detailed steps to help you avoid complications when claiming the home loan interest deduction:

Accurate Documentation

One of the most important aspects of claiming any tax deduction, including home loan interest under Section 24(b), is maintaining accurate and up-to-date documentation. The tax authorities may ask for proof of your loan repayments if your claim is scrutinized. To ensure a smooth filing process, keep the following records:

• Loan Account Statement: This statement provides a comprehensive view of your loan balance, interest payments, and principal repayments. It should be kept updated and available for reference.
  

• Interest Payment Receipts: These receipts, issued by your bank or financial institution, confirm the amount of interest you have paid during the financial year. Ensure you keep all receipts for the period you're claiming, as they will serve as the foundation for your claim.
  

• Property Documents: For the deduction under Section 24(b) to apply, the property must either be self-occupied or rented out. Maintain clear property documents like the sale deed, possession certificate, or rent agreements to substantiate the claim.

If any discrepancies arise between your records and the information you report on your return, having these documents will help you provide proof and avoid any confusion or disputes with the tax authorities.

Ensure Eligibility

Before claiming a deduction under Section 24(b), make sure the property for which the claim is being made meets all the eligibility criteria. The deduction can only be claimed for a property that is either self-occupied or let out. Ensure that:

• Self-Occupied Property: The home loan interest deduction applies to the property you live in. Make sure that the property is in your name and that you are not making claims for multiple self-occupied homes.
  

• Let-Out Property: If the property is rented out, you can still claim the deduction. However, ensure that the rental income is reported under "Income from House Property" in your ITR. Renting out your property on short-term platforms like Airbnb could complicate the claim, so it’s essential to report rental income accurately.
  

• Eligibility for Deductions: Remember that the deduction under Section 24(b) is only available for interest paid on loans taken for purchasing, constructing, repairing, renewing, or reconstructing a property. Ensure that the loan is used for the intended purpose.

Review these points carefully before filing your ITR to ensure you are eligible for the deduction and avoid issues that could arise if the tax authorities question the legitimacy of your claim.

Report Properly in the ITR

Proper reporting of the home loan interest deduction is key to avoiding mistakes that could lead to the rejection of your claim or trigger a tax audit or notice. When filing your Income Tax Return (ITR):

• Correct Section: Ensure that you report the interest deduction correctly under the "Income from House Property" section. The deduction should be mentioned under the heading "Interest on loan for self-occupied property" or "Interest on loan for let-out property," depending on the property’s status.
  

• Right Form: If you are a salaried individual, ITR-1 (Sahaj) may be suitable for your tax filing, while those with more complex income sources may need ITR-2. Make sure you select the right form based on your income and property details.
  

• Avoid Underreporting: Underreporting the interest paid or misreporting the figures can lead to tax notices. Double-check the figures provided on the loan account statement against the receipts for the correct deduction amount. Any inconsistencies can be flagged by the tax department.
  

• Fill In the Correct Taxable Income: Ensure that the income from house property is properly adjusted by the deductions claimed under Section 24(b) so that the taxable income is reduced accordingly. Avoid rounding off figures and ensure that all numbers are accurate and match your loan documents.

Timely Filing

Filing your tax return on time is one of the simplest and most effective ways to avoid penalties, interest, and tax notices. Here’s why timely filing is crucial:

• Avoid Penalties and Interest: Late filing not only leads to penalties and interest charges but can also trigger scrutiny from the tax department. If you miss the filing deadline, the tax authorities might look into your return more carefully, which increases the likelihood of receiving a notice.
  

• Filing a Belated Return: If you miss the original deadline for filing your ITR, you can still file a belated return until December 31 of the assessment year. However, this will come with penalties, and the scrutiny of your return will increase. If you fail to file within the extended time, you risk being penalized and attracting additional interest charges.
  

• Stay Updated with Deadlines: Ensure you are aware of the exact due dates for filing your returns and make sure to complete the filing process well in advance to avoid any last-minute rush. Missing out on deadlines can complicate the process and raise the chances of a tax audit.
  

• E-File for Convenience: Filing online offers a quicker, more streamlined process. Taxpayers using platforms like TaxBuddy can ensure that their returns are submitted on time, reducing the risk of delays or errors. Such platforms also assist in staying compliant and help in submitting all necessary documents accurately.

Handling Section 142(2A) Tax Audits for Freelancers and Self-Employed

Section 142(2A) of the IncomeTax Act gives the Income Tax Department the power to order a special audit if it believes that the taxpayer’s books of accounts need a more detailed review. Freelancers and self-employed individuals, who often have irregular income and complex deductions (such as home loan interest), may face a tax audit under this section if their returns are flagged for discrepancies.

Here’s how to handle such audits:

• Maintain Proper Records: Ensure all income and expense records, including home loan interest payments, are accurately documented. Tax professionals often recommend keeping detailed logs of all business-related transactions and home loan statements.
  

• Engage a Tax Professional: If you’re under audit, it’s advisable to hire a qualified tax professional to manage the process. They will help you navigate the audit, provide the necessary documentation to the tax authorities, and handle any questions that arise.
  

• Timely Compliance: Respond to any notices or queries from the Income Tax Department promptly. Failure to do so can result in penalties or further complications.

Addressing Questions on Home Loan Deduction Claims

Over time, various specific scenarios may arise that require additional clarification on home loan deductions:

• What if the property is under construction? You can claim the interest paid during the construction period once the property is completed. However, the interest during the construction phase can be claimed only after the property is ready for possession. Additionally, the interest is calculated for the period between the start of the loan and the completion of the property.
  

• What if the loan was taken for a second property? If you have taken a second loan for a second home, the interest on the loan can be claimed under Section 24(b) as well, provided the property is not let out, and the second property is self-occupied.
  

• What if the property is jointly owned? If the home loan is in joint ownership, each co-owner can claim a deduction on the interest paid in proportion to their share in the property.

Conclusion

The home loan interest deduction under Section 24(b) is a valuable tool for taxpayers, providing significant relief by reducing taxable income. Understanding how to claim this deduction correctly, ensuring that all supporting documentation is in place, and following best practices can help avoid errors and tax notices. For freelancers and self-employed individuals, maintaining accurate records and understanding the nuances of tax audits, especially under Section 142(2A), is crucial to ensuring a smooth filing experience. By following these guidelines, taxpayers can optimize their tax savings and avoid complications during the filing process.

FAQs

Q1: What is the ITR filing deadline for FY 2024-25 (Assessment Year 2025-26)? The ITR filing deadline for individuals and non-audit assessees is September 15, 2025. For businesses that require an audit, the deadline is October 31, 2025, and for those with transfer pricing requirements, it is November 30, 2025. Belated returns can be filed until December 31, 2025, but penalties and interest will apply.

Q2: How do I file my ITR using the utility and JSON files? To file your ITR using the utility and JSON files, you must first download the Income Tax Return (ITR) utility from the official Income Tax Department portal. After filling out the required details in the utility, save the return in JSON format. This JSON file is then uploaded to the Income Tax e-filing portal for submission.

Q3: What is the role of JSON files in ITR filing? JSON files serve as the data format used to store the information filled out in the ITR utility. It’s a structured way to store tax-related data, making it easy to upload and validate the details on the Income Tax Department’s e-filing portal. This file helps ensure that the information is transferred accurately and in the required format.

Q4: Why do I need to use the ITR utility for filing? The ITR utility is a specialized tool designed by the Income Tax Department to help taxpayers fill in their returns accurately. It checks for errors, ensures that all required fields are filled, and generates the correct file format (JSON) for submission. Using this tool reduces the chances of errors in the return and helps ensure compliance with tax regulations.

Q5: Can I manually enter my ITR details without using the ITR utility? No, it is highly recommended to use the ITR utility provided by the Income Tax Department to file your return. The utility is designed to ensure that the data is correctly entered and formatted for submission to the portal. While you can use other methods to submit returns, using the utility is the safest and most accurate way to file your ITR.

Q6: How do I download the ITR utility? You can download the ITR utility from the official Income Tax Department portal under the 'Downloads' section. Choose the appropriate utility for the relevant financial year (e.g., FY 2024-25 for Assessment Year 2025-26). Once downloaded, you can fill out the necessary fields, validate the information, and save it in JSON format.

Q7: Can I upload a partially filled ITR form? Yes, you can upload a partially filled ITR form, but it’s important to ensure that all mandatory fields are completed before submission. The utility allows you to save your progress and return to it later, giving you flexibility to upload the form once all required information is provided.

Q8: What happens if I upload an incorrect or invalid JSON file? If you upload an incorrect or invalid JSON file, the Income Tax Department’s portal will flag it as an error, and you will not be able to proceed with the submission. You’ll need to correct the errors, generate a new valid JSON file from the ITR utility, and upload it again.

Q9: Is there a way to correct my ITR if I made a mistake while filing? Yes, you can correct your ITR by filing a revised return. If you’ve made a mistake in your ITR, you can submit a revised version through the Income Tax Department’s portal within the assessment year. You’ll need to mention the acknowledgment number of the original return and ensure that the corrections are made accurately.

Q10: Can I claim deductions like HRA or home loan interest in my ITR using the utility? Yes, the ITR utility allows you to enter and claim various deductions, including HRA (House Rent Allowance) and home loan interest. You can fill in these details in the appropriate sections of the utility, and it will automatically calculate the deductions for you based on the information provided.

Q11: Is it necessary to file my ITR using the utility and JSON format? While the Income Tax Department’s portal allows for direct filing of ITR in some cases, using the utility and generating a JSON file is the most recommended method for accurate filing. This method helps avoid errors, ensures that all necessary data is filled, and simplifies the submission process.

Q12: Can I use TaxBuddy to file my ITR using JSON files? Yes, TaxBuddy helps streamline the entire ITR filing process, including the use of the ITR utility and JSON file submission. It ensures that your return is filled out accurately, and you can easily upload your JSON file to the Income Tax portal or have TaxBuddy assist with filing your return.