Buying a home is a dream for everyone. So, To encourage homeownership, the government provides tax benefits on home loan interest payments under Section 24 of the Income Tax Act. This provision allows borrowers to save on taxes while repaying their home loans. Let’s understand in detail.
Section 24 of the Income Tax Act provides deductions on the interest paid on a home loan. It is a relief measure for taxpayers who have taken a loan to buy, build, renovate, or reconstruct a house.
Key Highlight: The deduction under Section 24 applies only to the interest component of the home loan and not the principal amount.
Applicability: Available for both self-occupied and rented properties.
Self-occupied property: Up to ₹2,00,000 per annum
Rented-out property: No upper limit (entire interest amount is deductible)
Condition: To claim this benefit, the property must be constructed or acquired within 5 years from the end of the financial year in which the loan was taken.
Example: Suppose Rahul buys a house and pays ₹3,50,000 as interest on his home loan. Since the property is self-occupied, he can claim a deduction of ₹2,00,000, reducing his taxable income.
If your house is rented out, you can claim a 30% standard deduction on the annual rental income. This means only 70% of your rental income is taxable, significantly reducing your tax burden.
Example: If your rental income is ₹5 lakh annually, you can deduct 30% (₹1.5 lakh), and only ₹3.5 lakh will be taxable.
For self-occupied houses, the maximum deduction for interest paid on a home loan is ₹2 lakh per year. If the house is rented out, there is no upper limit, and you can claim the entire interest paid.
Example: If you pay ₹2.5 lakh as interest, you can claim only ₹2 lakh if the property is self-occupied. If rented out, you can claim the full ₹2.5 lakh.
Municipal taxes are the yearly payments made to the local municipal corporation. These taxes must be subtracted from the Gross Annual Value (GAV) of a property to calculate the Net Annual Value (NAV).
As such, municipal taxes can only be deducted if the property owner has paid them during the relevant fiscal year.
Individuals who have taken a home loan for buying, constructing, or repairing a property.
Joint Owners: If a home loan is taken jointly, each borrower can claim deductions separately on interest paid under Section 24.
Property Owners: The loan applicant must also be the owner or co-owner of the property to claim deductions.
Hindu Undivided Families (HUFs) are also eligible for deductions under Section 24.
Opt for a Joint Home Loan – If you co-borrow a home loan with your spouse or parent, both can claim deductions separately.
Rent Out Your Property – If you own multiple homes, renting them out allows you to claim a full interest deduction under Section 24.
Ensure Loan Completion within 5 Years – If the house is not completed within 5 years, the deduction on interest reduces from ₹2,00,000 to ₹30,000.
Combined with Section 80C – Apart from Section 24, you can claim an additional ₹1,50,000 deduction on principal repayment under Section 80C.
Claim Pre-Construction Interest – Interest paid during the construction period can be claimed in five equal installments starting from the year of completion.
| Topic | Details |
|---|---|
| Section 24 Overview | Provides tax deductions on home loan interest payments for buying, building, or renovating a property. |
| Deduction Limit | - Self-occupied: Up to ₹2,00,000/year - Rented-out: No limit, entire interest deductible. |
| Key Deductions | - Interest on Loan: Deductible for both self-occupied and rented properties. - Standard Deduction: 30% on rental income for rented properties. |
| Eligibility | Individuals, joint owners, and Hindu Undivided Families (HUFs) can claim deductions. |
| Maximizing Benefits | - Opt for a joint loan for separate claims. - Rent out property to claim full interest deduction. |
| Completion Condition | Property must be completed within 5 years from the loan year for full deduction. |
Section 24 is a powerful tool for home loan borrowers to save tax. By understanding its provisions and using smart strategies, you can significantly reduce your taxable income and save more money. If you have a home loan or are planning to take one, make sure to utilize these deductions effectively to maximize your savings.
We understand that getting a loan can be very stressful with confusing documents, unclear communication, and various other challenges. That is why we take care of your loan application process, saving you time and hassle by handling the paperwork and communicating with the loan providers.
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Need help? Reach out at support@eazybankloan.com
Yes! Section 24 allows deduction on interest paid, while Section 80C covers principal repayment.
No, there is no upper limit for interest deductions on rented-out properties.
Yes, under Section 80 EEA, first-time buyers get an additional ₹1.5 lakh deduction on home loan interest.
You can claim it in five equal parts starting from the year of house completion.
If sold within 5 years, deductions claimed under Section 80C may be reversed.
Yes, NRIs can claim these deductions if they own property.
You can claim only the interest deduction if you have proper loan documentation.
Are processing fees and other charges deductible?
No, only the interest component of the loan is eligible for deductions.
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