Quick Overview
- Allows deduction on interest paid on home loans.
- Applicable under the head “Income from House Property.”
- Maximum deduction of ₹2 lakh per year for self-occupied property (under the old regime).
- No upper limit on interest deduction for let-out property (subject to set-off rules).
- Pre-construction interest is allowed in 5 equal instalments.
- Available to individuals and HUFs.
- Principal repayment is not covered under Section 24B (covered under Section 80C).
- Deduction rules differ under the old and new tax regimes.
In case you have borrowed a home loan, you can enjoy tax benefits on the interest paid. Section 24B of the Income Tax Act, which offers homeowners a deduction on home loan interest, is one of the most significant provisions in the head of the Income Tax Act on House Property.
By knowing what Section 24B of the Income Tax Act states, you may be able to claim a substantial reduction in your taxable income, particularly when you have self-occupied or rented property. It gives a guide on how to calculate eligibility, limits, and their effect in both the old and new tax regimes.
What Is Income from House Property?
Income received on owning a property (residential or commercial) is taxed under the head “Income from House property” as per the Income Tax Act.
This includes:
- Rental revenue on let-out buildings.
- Rental income on certain vacant properties.
- Self-occupied property (treated as nil annual value)
Out of the gross annual value, some deductions are permitted, and they include:
- Standard deduction (30% of net annual value)
- Interest on borrowed capital as provided in Section 24B of the Income Tax Act.
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Overview of Section 24B of the Income Tax Act
Section 24 (b) (often called Section 24B) is a deduction on interest paid on borrowed capital employed to:
- Purchase of house property
- Construction of house property
- Repair, renewal, or reconstruction
The deduction is limited to the interest component of the home loan EMI and not the principal amount. This clause contributes significantly to the minimisation of taxable income, especially among those who are employed on salaries and have housing loans.
Eligibility Criteria for Claiming Section 24B Deduction
To claim a deduction under Section 24B of the Income Tax Act, certain conditions must be met.
Types of Home Loans Covered
The deduction is available if the loan is taken for:
- Purchase of a residential property
- Construction of a new house
- Renovation or repair (with different limits)
The loan must be taken from:
- Banks
- Housing finance companies
- Recognised financial institutions
- Employer (in some cases)
Personal loans from friends or relatives may not qualify unless properly documented.
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Who Can Claim Section 24B Deduction?
The following taxpayers can claim:
- Individual taxpayers
- Hindu Undivided Families (HUFs)
To claim the deduction:
- The taxpayer must be the owner or co-owner of the property.
- The taxpayer must be a co-borrower in case of joint loans.
- The construction must be completed (for higher deduction limits).
Maximum Deduction Limit Under Section 24B
Section 24b of the Income Tax Act limits depend on whether the property is self-occupied or let out.
Deduction for Self-Occupied Property
For a self-occupied property:
- The maximum deduction allowed is ₹2 lakh per financial year.
- The loan must be taken for purchase or construction.
- Construction must be completed within 5 years from the end of the financial year in which the loan was taken.
If these conditions are not met, the deduction limit reduces to ₹30,000.
Under Section 24b of the Income Tax Act in the new tax regime, this ₹2 lakh deduction is generally not available for self-occupied property if you opt for the new tax regime (unless it relates to let-out property calculation).
Deduction for Let-Out Property
For let-out or rented property:
- There is no upper limit on interest deduction under Section 24B.
- However, the loss under “Income from House Property” that can be set off against other income is restricted to ₹2 lakh per year.
- The remaining loss can be carried forward for 8 assessment years.
Deduction on Pre-Construction Interest
Interest paid during the pre-construction period is also allowed.
- Deduction begins only after construction is completed.
- Total pre-construction interest is divided into 5 equal annual instalments.
- These instalments are allowed in addition to regular interest deduction, subject to the overall limit (₹2 lakh for self-occupied property).
Other Related Sections
Section 80EE and 80EEA – Additional Deductions for Home Loan Interest
Apart from Section 24B of the Income Tax Act, additional deductions may be available:
- Section 80EE: Additional ₹50,000 deduction (subject to conditions).
- Section 80EEA: Additional ₹1.5 lakh deduction for affordable housing (subject to eligibility and loan sanction dates).
These are over and above the ₹2 lakh limit under Section 24B.
Section 24 – Standard Deduction on House Property Income
Under Section 24 (main section):
- 30% standard deduction is allowed on the net annual value of the let-out property.
- This is separate from interest deduction under Section 24(b).
How to Compute Deduction Under Section 24B
Understanding calculations helps you maximise tax benefits.
Step-by-Step Calculation Example
Example:
- Annual rental income: ₹5,00,000
- Municipal taxes paid: ₹50,000
- Home loan interest paid: ₹3,50,000
Step 1: Calculate Net Annual Value
₹5,00,000 – ₹50,000 = ₹4,50,000
Step 2: Standard deduction (30%)
30% of ₹4,50,000 = ₹1,35,000
Step 3: Deduct interest under Section 24B
₹3,50,000
Total deduction = ₹1,35,000 + ₹3,50,000
Taxable income from house property =
₹4,50,000 – ₹1,35,000 – ₹3,50,000 = Loss of ₹35,000
This loss can be set off against other income (up to ₹2 lakh).
Important Points to Remember
- An interest certificate from the lender is mandatory.
- Property must be in the taxpayer's name.
- Deduction allowed only on the interest actually payable.
- Completion certificate required for the full ₹2 lakh benefit.
- Deduction rules differ under the old vs the new regime.
Impact of Section 24B on Taxable Income
Section 24B of the Income Tax Act significantly reduces taxable income by:
- Lowering income under the house property.
- Allowing set-off against salary or business income (up to ₹2 lakh loss).
- Reducing overall tax liability.
However, under Section 24b of the Income Tax Act in the new tax regime, the deduction for self-occupied property interest is not available if you opt for the concessional tax regime. Therefore, taxpayers must compare regimes carefully before making a choice.
Conclusion: Maximise Tax Benefits Using Section 24B
Now that you understand Section 24B of the Income Tax Act, it is clear that this provision offers substantial tax relief to homeowners. With a deduction limit of up to ₹2 lakh for self-occupied property and unlimited interest deduction for let-out property (subject to set-off limits), it is one of the most valuable home loan tax benefits.
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Before filing your return, ensure:
- You have the correct interest certificate.
- You calculate pre-construction interest properly.
- You compare old vs new tax regimes carefully.
Proper planning can help you maximise deductions and reduce tax burden efficiently.
Frequently Asked Questions
Can NRIs claim Section 24B deduction?
Yes. NRIs can claim a deduction under Section 24B of the Income Tax Act on a property located in India, provided the income is taxable in India.
Can jointly owned properties claim a deduction under Section 24B?
Yes. If both co-owners are co-borrowers and contribute to loan repayment, each can claim a deduction separately in proportion to their share.
Is there a deduction on pre-construction period interest?
Yes. Pre-construction interest is allowed in five equal instalments starting from the year of completion.
What documents are required to claim Section 24B?
You need:
- Home loan interest certificate
- Loan sanction letter
- Completion certificate (if applicable)
- Ownership documents
How does Section 24B deduction differ for self-occupied and rented property?
For self-occupied property, the maximum deduction is ₹2 lakh per year (under the old regime). For rented property, there is no upper limit on interest deduction, but loss set-off against other income is restricted to ₹2 lakh annually.
