Buying a home is a significant milestone in one’s life. To encourage homeownership, the Indian government offers various tax benefits on home loans. Section 24 of the Income Tax Act, 1961, is one of the most crucial provisions for homeowners as it allows deductions on the interest paid on home loans.
Understanding the details of Section 24 can help taxpayers optimize their tax savings while fulfilling their dream of owning a home.
This article delves deep into Section 24 of the Income Tax Act, explaining its provisions, eligibility criteria, limits, and related aspects. By the end of this article, you will have a comprehensive understanding of how to claim deductions on home loan interest and maximize your tax benefits.
Understanding Section 24 of the Income Tax Act
Section 24 of the Income Tax Act pertains to the computation of income from house property. Under this section, homeowners can claim deductions on the interest paid on home loans. The key purpose of this section is to reduce the financial burden on taxpayers who have borrowed money to buy, construct, repair, renew, or reconstruct a residential property.
Types of Deductions Under Section 24
Section 24 provides two main types of deductions:
- Standard Deduction
- Deduction on Interest on Home Loan
1. Standard Deduction
A standard deduction of 30% is available on the Net Annual Value (NAV) of the property. This deduction is allowed irrespective of the actual expenses incurred by the taxpayer. However, this deduction applies only to properties that are let out. If the property is self-occupied, the NAV is considered to be zero, and hence no standard deduction is applicable.
Example:
- Gross Annual Value of property (rent received): ₹500,000
- Municipal Taxes paid: ₹50,000
- Net Annual Value (NAV) = Gross Annual Value – Municipal Taxes
- ₹500,000 – ₹50,000 = ₹450,000
- Standard Deduction = 30% of NAV
- 30% of ₹450,000 = ₹135,000
This amount can be deducted from the income from house property.
2. Deduction on Interest on Home Loan
Under Section 24(b), taxpayers can claim a deduction on the interest component of their home loan. The maximum deduction allowed depends on the nature of the property and the purpose of the loan.
Limits of Deduction on Interest Under Section 24(b)
| Nature of Property | Purpose of Loan | Maximum Deduction Allowed |
| Self-occupied Property | Purchase/Construction | ₹2,00,000 |
| Self-occupied Property | Repair/Renovation | ₹30,000 |
| Let-out Property | Purchase/Construction/Repair/Renovation | No limit (actual interest paid) |
Conditions to Avail the ₹2 Lakh Deduction
To claim the higher deduction of ₹2,00,000 for self-occupied properties, the following conditions must be met:
- The home loan must be taken for the purchase or construction of a house.
- The loan must be taken on or after April 1, 1999.
- The construction or purchase must be completed within five years from the end of the financial year in which the loan was taken.
- Relevant interest certificate must be furnished.
If any of these conditions are not met, the maximum deduction allowed is limited to ₹30,000.
Interest Deduction for Let-Out Property
For properties that are rented out, there is no upper limit on the amount of interest that can be claimed as a deduction. Taxpayers can deduct the entire interest paid during the year from the rental income, thereby significantly reducing their taxable income.
Pre-Construction Interest
Section 24 also allows for the deduction of pre-construction interest. Homeowners can claim interest paid during the period when the property was under construction. However, the deduction is not available in a lump sum; instead, it is spread over five equal installments starting from the year in which the construction is completed.
Example:
- Loan taken in FY 2018-19
- Construction completed in FY 2023-24
- Pre-construction interest paid: ₹2,50,000
Deduction allowed each year from FY 2023-24 onwards:
- ₹2,50,000 / 5 = ₹50,000 per year (subject to the overall limit of ₹2,00,000 for self-occupied property)
Additional Tax Benefits Under Other Sections
While Section 24 provides deductions for the interest component of home loans, taxpayers can also avail of deductions on the principal repayment under Section 80C and additional interest benefits under Section 80EE and Section 80EEA.
- Section 80C: Deduction of up to ₹1,50,000 on principal repayment.
- Section 80EE: Additional deduction of up to ₹50,000 for first-time homebuyers.
- Section 80EEA: Additional deduction of up to ₹1,50,000 for affordable housing loans.
Joint Home Loans and Tax Benefits
If a home loan is taken jointly by two or more individuals, each co-borrower can claim deductions individually under Section 24(b) provided they are co-owners of the property and service the loan. This effectively doubles the available deduction limit if the loan amount and interest payments are substantial.
Example:
- Joint loan taken by spouses
- Interest paid during the year: ₹4,00,000
- Each spouse can claim ₹2,00,000 separately if they both contribute to the loan repayment.
Steps to Claim Deduction Under Section 24
- Obtain Interest Certificate: Collect an interest certificate from the lender specifying the interest amount paid during the financial year.
- Ensure Property Ownership: Confirm that you are the legal owner or co-owner of the property.
- Complete Construction: Ensure the construction is completed within the specified timeframe.
- Declare in ITR: While filing the income tax return, declare the interest paid under the section for deductions.
Frequently Asked Questions (FAQs)
1. Can I claim Section 24 deductions if the property is under construction?
No, the deduction is available only after the completion of the construction. However, pre-construction interest can be claimed in five equal installments post-completion.
2. Is there any limit on the interest deduction for a let-out property?
No, for let-out properties, the entire interest paid can be claimed without any limit.
3. Can I claim deductions under Section 24 and Section 80C simultaneously?
Yes, Section 24 covers the interest component, while Section 80C allows deductions for the principal repayment.
4. What happens if the home loan is taken for renovation purposes?
For renovation or repairs, the maximum deduction allowed is ₹30,000 for self-occupied properties.
5. Is the deduction available for more than one property?
Yes, deductions can be claimed for multiple properties if the taxpayer owns more than one house, but certain conditions apply based on occupancy and income.
Conclusion
Section 24 of the Income Tax Act provides a valuable opportunity for homeowners to reduce their taxable income by claiming deductions on home loan interest. By understanding the eligibility criteria, limits, and related provisions, taxpayers can optimize their tax savings while investing in property. Alongside other sections like 80C, 80EE, and 80EEA, Section 24 forms an essential part of home loan tax planning in India. It is advisable to maintain proper documentation and seek professional advice if needed to maximize the benefits offered under this section.
