Claiming Tax Deductions for Home Loan Interest Under Section 24(b) and Avoiding Tax Notices
- Dipali Waghmode
- Jul 11
- 9 min read
Section 24(b) of the Income Tax Act, 1961, provides significant tax benefits for individuals who have taken a home loan. Specifically, it allows for the deduction of interest paid on the home loan, which can reduce taxable income and lower overall tax liability. This deduction is highly beneficial for those who are paying interest on loans for purchasing, constructing, or repairing a property. It is important to understand the conditions for claiming this deduction, the differences in tax benefits under the old and new tax regimes, and the most recent updates that may affect taxpayers' claims under Section 24(b).
Table of Contents
What is Section 24(b) of the Income Tax Act, 1961?
Section 24(b) of the Income Tax Act, 1961, allows individuals to claim a deduction on the interest paid on loans taken for the purchase, construction, or renovation of a residential property. This deduction is available under the head "Income from House Property" and applies to both self-occupied and let-out properties. The key benefit of this section is that it enables taxpayers to reduce their taxable income by the amount of home loan interest paid, which in turn lowers their tax liability.
For taxpayers who are paying interest on home loans, this section can significantly reduce the amount of tax they owe. The interest paid is deductible up to a maximum of ₹2,00,000 per year under specific conditions. However, the deduction amount can vary depending on the type of property and whether it is self-occupied or let out.
Key Conditions to Claim Section 24(b) Deduction
To claim the home loan interest deduction under Section 24(b), certain conditions must be met:
Eligibility: The borrower must be an individual or a Hindu Undivided Family (HUF) and must have taken a home loan for the purpose of buying, building, or renovating a residential property.
Loan Purpose: The loan must be specifically taken for the purchase, construction, renovation, or repair of the property. The deduction is not available for loans taken for other purposes, such as personal loans.
Interest Paid: The deduction can only be claimed on the interest portion of the EMI (Equated Monthly Installment) paid, not on the principal repayment.
Amount of Deduction: For self-occupied properties, the maximum allowable deduction on interest is ₹2,00,000 per year. For rented properties, there is no upper limit for interest deduction, and taxpayers can claim the full interest amount paid, subject to the rental income being declared.
Property Status: The property must be a residential property, either owned or under construction.
Possession Status: The home loan interest deduction is available from the year in which the construction is completed or possession of the house is taken, whichever comes first.
Claiming for Multiple Properties: A taxpayer can claim the deduction for multiple properties if the loans are for different properties, and each loan has met the prescribed conditions.
How to Avoid Tax Notices When Claiming Section 24(b) Deductions
Claiming deductions under Section 24(b) is straightforward if all the conditions are met. However, errors in the filing process can lead to tax notices or disallowance of the claim. To avoid receiving tax notices, follow these best practices:
Ensure Correct Documentation: Maintain a record of all relevant documents, including the loan agreement, interest certificates from the bank, and proof of EMI payments. These documents must be submitted to the Income Tax Department if requested.
Report Rental Income Accurately: If the property is rented, ensure that the rental income is declared in your return. The interest deduction under Section 24(b) is allowed only against rental income.
Avoid Over-Claiming: Do not exceed the maximum allowed deduction of ₹2,00,000 for self-occupied properties. Claiming more than the permissible limit will lead to tax notices.
Adhere to Possession Conditions: Ensure that the property for which you're claiming the deduction is either self-occupied or rented, and that possession has been taken in the year for which you claim the deduction.
File the Correct Form: Ensure you file the correct ITR form, depending on the nature of your income (ITR-1 for salaried individuals or ITR-2 for those with income from house property).
Consult a Professional: If you're unsure about your eligibility or the deductions you can claim, it's advisable to consult a tax professional or use a reliable e-filing platform like TaxBuddy to help ensure compliance.
Is Home Loan Interest Deduction Allowed in the New Tax Regime?
Under the new tax regime introduced in Budget 2020, individuals can opt for a reduced tax rate by forgoing most exemptions, deductions, and rebates available under the old tax regime. The home loan interest deduction under Section 24(b) is one of the deductions that is not available in the new tax regime.
If you opt for the new tax regime, you will not be able to claim the ₹2,00,000 deduction on home loan interest. Therefore, taxpayers must assess whether the benefits of the reduced tax rates under the new regime outweigh the loss of deductions like Section 24(b). For those with significant home loan interest payments, sticking to the old tax regime may be more beneficial, as the deduction can lead to substantial tax savings.
How Home Loan Interest Deduction Works in the Old Tax Regime
In the old tax regime, the home loan interest deduction under Section 24(b) is fully available for individuals, with the following details:
Self-Occupied Property: You can claim a deduction of up to ₹2,00,000 on the interest paid for a loan taken to purchase, construct, or repair a self-occupied property. This deduction is only available if the property is completed and possession is taken before the end of the financial year.
Let-out Property: There is no upper limit on the interest deduction for rented properties. The total interest paid on the loan for the rental property can be deducted from the rental income. This can result in a lower taxable income, even if the interest paid exceeds ₹2,00,000.
It is crucial to note that the home loan principal repayment is not eligible for a deduction under Section 24(b). However, it can be claimed under Section 80C, subject to a maximum limit of ₹1,50,000.
Latest Updates and News on Section 24(b)
The latest updates on Section 24(b) include clarification on the treatment of home loan interest in the case of under-construction properties. In previous years, taxpayers could not claim deductions for homes under construction until possession was received. However, recent changes allow individuals to start claiming the home loan interest deduction once the construction is completed, even if possession has not been formally transferred, as long as the property is ready for occupancy.
Additionally, the Government has provided more flexibility for taxpayers who are paying interest on loans for multiple properties. The tax department has streamlined the claim process to make it more transparent and accessible.
Conclusion
Claiming tax deductions under Section 24(b) can significantly reduce your taxable income and help you save on taxes. However, it’s crucial to follow the guidelines and maintain accurate documentation to avoid tax scrutiny. 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.
Frequently Asked Question (FAQs)
Q1: Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
Yes, TaxBuddy offers both self-filing and expert-assisted plans for Income Tax Return (ITR) filing, catering to different preferences. The self-filing option is ideal for individuals who are comfortable with the process and need basic assistance. It provides user-friendly tools to guide you through the filing. For those who prefer expert assistance, TaxBuddy’s professional services ensure your return is filed accurately with expert advice to optimize deductions, exemptions, and compliance. This flexibility allows you to choose the level of support that best suits your needs.
Q2: Which is the best site to file ITR?
The best site for filing ITR depends on the user's needs. TaxBuddy is a highly recommended platform for filing ITR due to its user-friendly interface, AI-powered filing assistance, and the option for professional support. It ensures a seamless filing process with accurate calculations, personalized advice, and timely updates. For those who are familiar with the process, the official Income Tax Department portal is another option. However, TaxBuddy offers additional features like error-checking and expert guidance, making it a reliable choice for most taxpayers.
Q3: Where to file an income tax return?
You can file your ITR either through the official Income Tax Department portal at incometax.gov.in or via platforms like TaxBuddy. TaxBuddy provides a more guided experience with options for self-filing and expert assistance, making it easier for taxpayers, especially those unfamiliar with tax laws, to file their returns accurately. The Income Tax Department portal is another valid option, especially for those who prefer a direct, no-frills approach.
Q4: Can I claim both Section 24(b) and Section 80EE deductions?
Yes, you can claim both deductions. Section 24(b) allows you to claim a deduction of up to ₹2 lakh per year on home loan interest for a self-occupied property. Section 80EE, on the other hand, allows an additional deduction of up to ₹50,000 for first-time homebuyers on home loan interest, provided certain conditions are met. You should first exhaust the Section 24(b) deduction limits before claiming Section 80EE. It’s important to review both sections to ensure you’re claiming the maximum benefit.
Q5: Can I claim the deduction if the property is under construction?
Yes, you can claim the deduction on home loan interest under Section 24(b) even if the property is under construction. However, the claim will be allowed in installments. The interest paid during the construction period can be claimed in five equal installments after the property is completed and possession is taken. The maximum allowable deduction remains ₹2 lakh per annum for self-occupied property once construction is complete.
Q6: What if I have a joint home loan?
If you have a joint home loan, each co-borrower who is also a co-owner of the property can claim their share of the home loan interest deduction under Section 24(b). The total deduction for each co-borrower depends on their share of the loan and the amount of interest paid. This allows multiple co-owners to take advantage of the deduction, maximizing the tax benefit.
Q7: What documents are needed to claim the deduction?
To claim the home loan interest deduction under Section 24(b), you need the following documents:
Interest certificate from the bank or financial institution.
Loan sanction letter and details of the principal and interest components.
Possession or completion certificate for the property.
Payment receipts of the home loan interest.
These documents are essential to verify the loan and interest payments when filing your ITR and ensuring your claim is legitimate.
Q8: Can I claim HRA and home loan interest deduction together?
Yes, you can claim both House Rent Allowance (HRA) and home loan interest deduction together, provided certain conditions are met. If you live in a rented property and also own a self-occupied property for which you're paying a home loan, you can claim the HRA deduction for your rented accommodation and also claim the home loan interest deduction under Section 24(b) for the property you own. Ensure both claims meet the eligibility criteria for each section.
Q9: What is the maximum deduction allowed under Section 24(b) for self-occupied property?
Under Section 24(b), the maximum deduction allowed on home loan interest for a self-occupied property is ₹2 lakh per year. This limit applies regardless of the size of the loan or interest paid, making it a significant deduction for homebuyers with home loans on self-occupied properties. However, if the property is let out, the entire interest paid on the loan is eligible for deduction under this section, without the ₹2 lakh limit.
Q10: Is there any deduction for interest paid on loans for repairs or renovation?
Yes, you can claim a deduction of up to ₹30,000 per annum on interest paid for loans taken for repairs or renovation of a self-occupied property under Section 24(b). This applies to loans specifically for home improvement or renovation. However, this deduction is separate from the general home loan interest deduction, and the total deduction for repairs and renovation is capped at ₹30,000.
Q11: Can I claim home loan interest deduction for a commercial property?
No, Section 24(b) of the Income Tax Act only allows deductions for loans taken on residential properties, whether self-occupied or let out. Loans taken for commercial properties do not qualify for the home loan interest deduction under this section. However, if you use the commercial property for business, the interest paid on the loan might be deductible as a business expense under business income.
Q12: How can I ensure that my home loan interest claim is compliant with tax regulations?
To ensure compliance with tax regulations when claiming home loan interest deductions, you should:
Maintain proper records of all documents, including loan agreements, interest certificates, payment receipts, and possession certificates.
Ensure that the loan is for the purchase, construction, or renovation of a residential property.
Verify the correct reporting of the loan and interest payments in Form 26AS and the Income Tax Return (ITR) forms.
Cross-check the amount of interest claimed with the documentation to avoid discrepancies or audit triggers.
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