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.
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.
List of related sections
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.
