What is Section 24(b) of the Income Tax Act? 24(b) Under New Tax Regime

Know how Section 24(b) of Income Tax Act can help you save on home loan interest, reduce tax liability, and promote better financial planning.
Home Loan
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2 min
13 July 2024

Owning a home is a dream for many, and while the journey to homeownership can be exhilarating, the financial aspects often bring about a fair share of challenges. One such challenge is managing the expenses incurred through a home loan. Fortunately, the Indian government provides several tax benefits to home loan borrowers to alleviate some of this financial burden. One of the most significant provisions in this regard is Section 24(b) of the Income Tax Act. This section allows homeowners to claim deductions on the interest paid on home loans, thereby reducing their taxable income.

Understanding Section 24(b) of the Income Tax Act

Section 24(b) of Income Tax Act pertains to the deductions available on the interest component of a home loan. This section is particularly beneficial for those who have availed home loans for the purchase, construction, repair, renewal, or reconstruction of a property. The key highlights of this section include:

  1. Deduction on interest paid: Under Section 24(b), taxpayers can claim a deduction of up to Rs. 2,00,000 per annum on the interest paid for a self-occupied property. For properties that are not self-occupied, there is no upper limit on the deduction amount.
  2. Eligibility: The deduction is applicable only if the loan is taken for the purpose of purchasing, constructing, repairing, renewing, or reconstructing a property. Additionally, the construction or acquisition of the property must be completed within five years from the end of the financial year in which the loan was taken.
  3. Pre-construction interest: Interest paid during the pre-construction period can also be claimed as a deduction. This interest is allowed in five equal instalments starting from the year in which the construction is completed or the property is acquired.
  4. Loan purpose: The loan must be taken from a financial institution or any approved body for the purpose of purchasing or constructing a house. Loans taken for repairs or renewals are also eligible but have a lower deduction limit.

Benefits of Section 24(b) of the Income Tax Act

  1. Reduces tax liability: One of the primary benefits of Section 24(b) of Income Tax Act is the reduction in tax liability. By claiming the deduction on the interest paid on a home loan, taxpayers can significantly lower their taxable income, resulting in substantial tax savings. This can be a major relief, especially for those in higher income brackets.
  2. Encourages home ownership: The provisions under 24(b) of Income Tax Act encourage homeownership by making home loans more affordable. By offering tax deductions on the interest component of home loans, the government provides an incentive for individuals to invest in residential properties. This not only fulfills the dream of owning a home but also contributes to the overall growth of the housing sector.
  3. Financial planning: Understanding the benefits under Section 24(b) of Income Tax Act can help in better financial planning. Home loan borrowers can factor in the tax deductions while calculating their overall expenses, which can aid in more effective budgeting and financial management. This can be particularly useful when planning long-term financial goals, such as retirement savings or investments.

How to claim deductions under Section 24(b) of the Income Tax Act

Claiming deductions under Section 24(b) of Income Tax Act is a straightforward process. Here are the steps involved:

  1. Loan certificate: Obtain a loan certificate from your lender, which details the amount of interest paid during the financial year. This certificate is essential for claiming the deduction.
  2. Self-occupied property: For a self-occupied property, the maximum deduction limit is Rs. 2,00,000. Ensure that the construction or acquisition of the property is completed within five years from the end of the financial year in which the loan was taken.
  3. Non self-occupied property: For properties that are not self-occupied, there is no upper limit on the interest deduction. This can include rental properties or properties occupied by other family members.
  4. Pre-construction interest: If you are claiming pre-construction interest, calculate the total interest paid during the pre-construction period and divide it into five equal instalments. The first instalment can be claimed in the year in which the construction is completed or the property is acquired.
  5. Form 12BB: Submit Form 12BB to your employer if you want the tax deduction to be reflected in your monthly TDS (Tax Deducted at Source) calculation. This will ensure that your employer deducts the correct amount of tax each month.
  6. Income tax return: Finally, while filing your income tax return, mention the total interest paid under the head “Income from House Property” and claim the deduction under Section 24(b) of Income Tax Act.

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Frequently asked questions

What is the maximum deduction available under Section 24(b)?
The maximum deduction available under Section 24(b) of Income Tax Act is Rs. 2,00,000 per annum for the interest paid on a home loan for a self-occupied property. For properties that are not self-occupied, there is no upper limit on the deduction amount.
Can I claim Section 24(b) deductions on multiple properties?
Yes, you can claim Section 24(b) deductions on multiple properties. For self-occupied properties, the total deduction is capped at Rs. 2,00,000. For non-self-occupied properties, there is no upper limit on the interest deduction.
What documents are required to claim Section 24(b) deductions?
To claim Section 24(b) deductions, you need to provide a loan certificate from your lender detailing the interest paid, Form 12BB for TDS adjustments, and relevant income tax return forms to report the deductions.
Is there a difference between Section 24(b) and Section 80EE?
Yes, Section 24(b) provides deductions on home loan interest, while Section 80EE offers additional deductions of up to Rs. 50,000 for first-time homebuyers on the interest paid, subject to certain conditions.
How does Section 24(b) affect my overall tax liability?
Section 24(b) reduces your overall tax liability by allowing you to deduct the interest paid on home loans from your taxable income, lowering your taxable base and thus reducing the amount of tax you owe.
What is the maximum deduction limit under Section 24(b) for a self-occupied property?

For a self-occupied property, the maximum deduction available under Section 24(b) is 2,00,000 per financial year on the interest paid on a home loan. This benefit is applicable only if the construction or purchase of the property is completed within five years from the end of the financial year in which the loan was taken. If this condition is not met, the deduction limit reduces significantly to 30,000 per year, impacting overall tax savings.

 

Is there a limit on interest deduction for a let-out (rented) property?

There is no upper limit on the amount of interest you can claim as a deduction for a let-out or deemed let-out property. The entire interest paid on the home loan can be deducted from the rental income. However, if this results in a loss under income from house property, only up to 2,00,000 can be set off against other income sources like salary in the same year. Any remaining loss can be carried forward for up to eight years.

Can I claim a deduction for interest paid before I got possession of the house?

Yes, interest paid during the pre-construction period is eligible for deduction under Section 24(b). This period includes the time from loan disbursement until the end of the financial year before possession is obtained. The total pre-construction interest is allowed as a deduction in five equal instalments, starting from the year in which construction is completed or possession is taken. This benefit is in addition to the regular interest deduction, subject to applicable limits.

Can both husband and wife claim Section 24(b) deductions for a joint home loan?

Yes, both husband and wife can claim deductions under Section 24(b) if they are co-borrowers as well as co-owners of the property. Each individual can claim up to 2,00,000 as interest deduction for a self-occupied property, depending on their share in the loan and ownership. This effectively allows a combined deduction of up to 4,00,000 per year for a jointly owned home, making it a tax-efficient option for couples.

Can I claim Section 24(b) benefits if I have opted for the New Tax Regime?

Under the New Tax Regime, the deduction under Section 24(b) for interest on self-occupied property is not allowed. However, for let-out or rented properties, interest deductions can still be claimed. It is important to note that any loss arising from such deductions cannot be set off against other income heads like salary under the new regime. Therefore, taxpayers should evaluate both regimes carefully before making a choice.

 

What is the difference between Section 24(b) and Section 80C regarding home loans?

Section 24(b) allows a deduction on the interest component of a home loan, with a maximum limit of 2,00,000 for self-occupied properties. In contrast, Section 80C covers the principal repayment of the home loan, with an overall limit of 1,50,000, which also includes other eligible investments like provident fund and insurance premiums. Together, these sections provide comprehensive tax benefits on both interest and principal components of a home loan.

 

Can I claim both HRA (House Rent Allowance) and Section 24(b) deductions?

Yes, it is possible to claim both HRA and Section 24(b) deductions simultaneously under certain conditions. This typically applies when you live in a rented house while owning a property in another location due to work or other reasons. You must be able to justify that you are genuinely paying rent and that your owned property is not being used as your residence. Proper documentation is essential to support both claims.

What happens to the deduction if construction is not completed within 5 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 maximum interest deduction reduces from 2,00,000 to 30,000 per year. This significantly lowers the tax benefit available under Section 24(b). Therefore, timely completion of the property is crucial for maximising tax savings on home loan interest.

Can I claim a deduction for a loan taken from friends or relatives?

Yes, you can claim a deduction on the interest paid for a home loan taken from friends or relatives under Section 24(b), provided you have proper documentation such as an interest certificate or agreement. However, the principal repayment on such loans does not qualify for deduction under Section 80C, as this benefit is limited to loans taken from specified financial institutions like banks and housing finance companies.

What documents are required to claim the Section 24(b) deduction?

To claim a deduction under Section 24(b), you need an interest certificate issued by your lender that specifies the total interest paid during the financial year. Additional documents include the loan sanction letter, possession or completion certificate, and repayment statements. These documents are essential for verifying your claim while filing income tax returns and may be required by your employer or tax authorities for validation.

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