Tax deduction on home loan interest section 24
Section 24 of the Income Tax Act, 1961, is a critical provision that allows taxpayers to claim deductions on the interest paid on a home loan. This provision provides significant relief to taxpayers who have availed of home loans to purchase or construct a house property.
What is Section 24 in Income Tax Act 1961?
Section 24 of the Income Tax Act, 1961, deals with the deduction of interest on home loans. According to this section, an individual or a Hindu Undivided Family (HUF) can claim a deduction of up to Rs. 2 lakh on the interest paid on a home loan in a financial year. This deduction is available for self-occupied properties. However, if the construction is not finished within five years from the end of the financial year when the loan was disbursed, you can only claim a deduction of Rs. 30,000.
If you have rented out the property, you can claim the entire interest repaid on the home loan as a deduction.
It is important to note that the deduction under Section 24(b) is available only for the interest paid on the home loan, and not the principal amount. Additionally, you can claim a maximum of Rs. 30,000 for the interest paid on loan taken for repairs, renovation, or any other purpose.
If you repay the home loan before the construction is completed, you can claim the total amount eligible for deduction in five equal instalments. You can claim the deduction over five financial years in succession from the year the construction is completed.
What is income from house property?
Income from house property refers to earnings that arise from owning a residential or commercial property. Under the Income-tax Act, 1961, this income is taxed separately, even if the property is not actually rented out.
The following types of income are considered under this head:
- Rental income received from a property that has been let out to tenants is fully taxable.
- The annual value of a property that is treated as “deemed to be let out” is also taxable. This usually applies when you own more than two properties.
- Annual value simply means the expected rent the property could generate if it were rented in the open market.
- For self-occupied properties, the annual value is generally taken as zero. In some cases, it may even become negative when you claim deductions such as home loan interest.
- If you own more than two properties and they are not rented, the additional ones are treated as deemed let-out, and notional rent is calculated for taxation.
- For a rented property, the actual rent received is called the Gross Annual Value (GAV).
- In the case of deemed let-out properties, the reasonable rental value of similar properties in the area is treated as the GAV
What are the deductions available for income from house property?
When calculating taxable income from house property, certain deductions are allowed to reduce your overall tax burden. These deductions help account for expenses and interest paid on housing loans.
1. Municipal tax
- Municipal taxes are charges paid to the local municipal authority where the property is located.
- These taxes are deducted from the Gross Annual Value to calculate the Net Annual Value (NAV).
- The deduction is allowed only if the property owner has actually paid the tax during the financial year.
- If the tenant pays these taxes, the owner cannot claim the deduction.
2. Standard deduction
- A flat deduction of 30% of the Net Annual Value is allowed.
- This deduction is given regardless of actual expenses incurred on maintenance, repairs, or insurance.
- It simplifies tax calculations as no proof of expenditure is required.
3. Interest on home loan
- For self-occupied properties, you can claim up to Rs.2 lakh per year on interest paid towards a home loan.
- This benefit also applies if the property remains vacant.
- If the property is rented out, there is no upper limit on the interest deduction.
- However, the deduction is capped at Rs.30,000 if:
- The loan is taken for repairs, renovation, or reconstruction, or
- The construction or purchase is not completed within five years from the end of the financial year in which the loan was taken.
4. Pre-construction interest
- Interest paid during the construction phase is called pre-construction interest.
- This amount cannot be claimed immediately during the construction period.
- Instead, it is accumulated and allowed as a deduction after construction is completed.
- The total amount can be claimed in five equal instalments starting from the year of completion.
- For example, if construction is completed on 25 June 2025 in FY 2025–26, you can claim deductions from FY 2025–26 to FY 2030–31.
- This benefit is available only for new construction and not for repairs or renovation.
- For self-occupied property, the total deduction (including regular interest) cannot exceed Rs.2 lakh in a year.
Note:
- Under the new tax regime, interest deduction is not allowed for self-occupied properties.
- For let-out properties, full interest deduction is available without any limit, irrespective of the tax regime chosen.
5. Section 80EE and 80EEA
- If you took a home loan between 01 April 2016 and 31 March 2017, you may claim an additional deduction of up to Rs.50,000 under Section 80EE.
- If the loan was taken between 01 April 2019 and 31 March 2022, you may claim up to Rs.1,50,000 under Section 80EEA.
- These deductions are over and above the Rs.2 lakh limit under Section 24, subject to eligibility conditions.
6. Principal repayment on home loan
- Repayment of the principal amount qualifies for deduction under Section 80C.
- Expenses such as stamp duty and registration charges are also eligible.
- This deduction is not available if the loan is taken for repairs or renovation.
- Under the new tax regime, deduction for principal repayment is not allowed.
Who can claim deductions under Section 24?
Individuals who own a residential property, whether it generates rental income or is self-occupied, are eligible to claim deductions under Section 24. This includes a standard deduction of 30% on the gross annual value of a let-out property, irrespective of the actual expenses incurred.
Conditions for claiming deduction under section 24
There are a few conditions that a taxpayer must fulfil to claim deductions under section 24. These conditions are as follows:
- The loan must be taken for the purchase, construction, repair, or renovation of a house property.
- The loan must be taken from a bank, a financial institution, or a housing finance company.
- The loan must be taken on or after April 1, 1999.
- You must have the interest certificate for the interest payable on the loan.
- The construction of the house property must be completed within five years from the end of the financial year in which you took the loan.
If the taxpayer satisfies these conditions, they can claim a deduction of up to Rs. 2 lakh (or Rs. 30,000, whichever is applicable) on the interest paid on the home loan in a financial year.
Section 24 of the Income Tax Act, 1961, is an essential provision that provides significant relief to taxpayers who have availed of home loans to purchase or construct a house property. The deduction of up to Rs. 2 lakh on the interest paid on a home loan is a considerable relief, especially given the high cost of owning a home in the country.
The conditions laid down under section 24 must be satisfied to claim the deduction. Therefore, taxpayers must carefully evaluate their eligibility before claiming deductions under this section.
How to Claim up to 2 Lakh Annually on Home Loan Interest?
Under Section 24(b) of the Income Tax Act, homeowners can claim a deduction of up to ₹2 lakh annually on the interest paid for a self-occupied home loan. This benefit applies if the loan is taken for purchasing or constructing a new house, and the acquisition or construction is completed within five years from the end of the financial year in which the loan was taken. If the construction exceeds this period, the deduction limit reduces to ₹30,000. For rented properties, there's no upper limit on the interest deduction.
** If you want to avail of tax deductions under section 24, you must opt for the old tax regime. These benefits have been excluded from the new tax regime with effect from April 1, 2023.
Conclusion
Section 24 plays an important role in reducing tax liability on home loans, but its benefits differ under the old and new tax regimes. The new regime restricts certain deductions, especially for self-occupied properties, which can impact overall savings. Taxpayers should carefully evaluate their eligibility, property status, and loan details before choosing a regime. A clear understanding of these rules can help in better tax planning and improved financial management over time.
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Frequently asked questions
Tax benefits for self-occupied and let-out properties vary. For self-occupied properties, you can claim a tax deduction on home loan interest up to Rs 2 lakh per year under Section 24B. This Rs 2 lakh limit applies collectively to both self-occupied properties.
Yes, if the first home is self-occupied and the second home is vacant, both will be considered self-occupied. In this scenario, you can claim a tax deduction on the interest paid for both properties, but the total deduction cannot exceed Rs 2 lakh.
For under-construction properties, tax deductions on home loan interest payments are not available until the construction is finished. However, once the construction is completed, the interest paid during the construction period can be claimed in five equal instalments starting from the year of completion.
The deduction for interest paid can be claimed once the construction of the home is completed, provided it is finished within 5 years. The deduction can be claimed in five equal instalments.
Section 24(b) allows a deduction of up to ₹2 lakh annually on home loan interest for self-occupied properties. Section 80EE provides an additional deduction of ₹50,000 for first-time homebuyers. Section 80C offers a deduction of up to ₹1.5 lakh on the principal repayment of the home loan.
The six common types of mortgages are:
Fixed-rate mortgage – Constant interest rate throughout the loan tenure.
Floating-rate mortgage – Interest rate fluctuates with the market.
Interest-only mortgage – Borrower pays only interest initially.
Reverse mortgage – Seniors get payments using their home equity.
Balloon mortgage – Lower EMIs initially, with a lump sum due later.
Government-backed mortgage – Loans subsidized by the government.
Under Section 24(b), up to ₹2 lakh of home loan interest is tax-deductible for self-occupied properties. For rented properties, there’s no upper limit, but total loss under "Income from House Property" is capped at ₹2 lakh. Additional deductions under Sections 80EE and 80EEA apply for first-time buyers.
To claim a home loan interest deduction under Section 24(b) in ITR, select the appropriate form (ITR-1 or ITR-2), navigate to the "Income from House Property" section, enter the total interest paid, and submit supporting documents like loan statements. Ensure the property is in your name and loan EMIs are paid.
If your property is rented out, you can claim the entire interest paid on your home loan as a deduction without any upper limit. However, the total loss under the head “income from house property” that can be set off against other income is restricted to Rs. 2 lakh in a financial year. Any remaining loss can be carried forward to future years.
Yes, deductions can be claimed for multiple properties. For self-occupied properties, the maximum interest deduction is limited to Rs. 2 lakh in total. For rented properties, the full interest amount is allowed as a deduction. However, when adjusting losses against other income, the total set-off is restricted to Rs. 2 lakh per financial year.
If construction is not completed within five years from the end of the financial year in which the loan was taken, the deduction limit for interest on a self-occupied property reduces to Rs. 30,000 per year. However, if the property is rented out, you can still claim the full interest paid without any restriction on the deduction amount.
Section 24 allows a deduction of up to Rs. 2 lakh on interest paid for a home loan on a self-occupied property. Section 80EE offers an additional benefit of up to Rs. 50,000 for eligible first-time homebuyers. If you meet the conditions for both sections, you can claim deductions under each, thereby increasing your overall tax savings.
