Buying a house is a major financial step for most people in India. Since property prices are high, buyers normally rely on home loans to fund their purchases. To encourage citizens to buy homes, the government offers tax benefits on these loans. When calculating your income from house property, the tax rules allow you to reduce the interest paid on your home loan.
This specific benefit makes buying and owning a home more affordable over the long run. Note that the provisions historically found under Section 24(b) of the Income Tax Act, 1961 continue under India's newer tax legislation, though it is worth confirming the current section reference at the time of filing, since numbering and terminology can shift when tax law is re-legislated.
Key Takeaways
- Section 24(b) of the Income Tax Act allows you to claim tax benefits on the interest portion of your home loan.
- The maximum limit for a self-occupied property is INR 2 lakh per financial year, under the old tax regime.
- You can also claim a deduction for interest paid during the construction phase in five equal yearly instalments.
- This benefit is not available at all if you choose the new tax regime for a self-occupied house.
What Is Section 24(b) of the Income Tax Act?
When filing taxes, new homeowners often ask what Section 24(b) is and how it works. Simply put, it is a provision in Indian tax law giving relief on home loan interest. If you take a loan to purchase, construct or repair a residential property, Section 24(b) of the Income Tax Act allows you to deduct the interest from your taxable income under the old tax regime. This lowers your overall tax liability.
Section 24(b) Deduction Limit
The rules set clear limits on how much interest you can deduct. The exact 24 b deduction depends on whether you live in the house or rent it out to someone else. Here is a simple table to show the maximum limits.
| Property Type | Maximum Deduction Limit |
| Self-Occupied Property | Up to INR 2 lakh per year (old tax regime only) |
| Let-Out (Rented) Property | No upper limit (actual interest paid, available under both tax regimes) |
Note: The INR 2 lakh limit applies only if the construction or purchase is completed within five years from the end of the financial year in which the loan was taken. If it takes longer, the limit drops to INR 30,000.
Who Can Claim Section 24(b) Deduction?
Not everyone with a loan can claim the Section 24(b) deduction. You must meet a few basic conditions. First, you must be the legal owner of the property. Second, the loan must be in your name.
If you are a joint owner and a co-borrower, you can claim the benefit based on your ownership share. Finally, the loan must be used for buying, building, repairing or reconstructing the house. You cannot claim this benefit for personal loans used for other purposes.
Section 24(b) for Self-Occupied and Let-Out Property
The rules change depending on how you use the house. If you live in the house with your family, it is a self-occupied property. For this category, under the old tax regime, the maximum Section 24(b) deduction is capped at INR 2 lakh, and this deduction is not available at all under the new tax regime.
However, if you rent out the house, it becomes a let-out property. For let-out properties, you can deduct the entire interest amount you paid during the year without any maximum cap, and this holds true under both the old and new tax regimes. This rule makes taking a loan for a rental property fairly tax efficient regardless of which regime you choose.
Also Read About: What is Tax Deductible Interest?
Pre-Construction Interest Under Section 24(b)
Many people take a loan to build a house, but construction usually takes a few years. You cannot claim the tax benefit while the house is still being built. The interest you pay during this building phase is called pre-construction interest.
Under the 24 b income tax rules, you can claim this accumulated interest only after construction is complete. The total accumulated interest is divided into five equal parts, and you can claim one part every year for five consecutive years along with your regular yearly interest.
Also Read About:How to Avail Tax Benefits on Second Home Loan?
Section 24(b) Under the New Tax Regime
India's tax system now operates with a new tax regime carrying lower tax rates but fewer deductions, which is the default regime for most taxpayers. If you are taxed under the new regime, you cannot claim the 24 b deduction for a self-occupied property at all. The benefit is fully removed in that case.
However, if you have a let-out property, you can still claim the interest deduction against the rental income, since this benefit is preserved under both regimes. You should compare both regimes carefully, ideally with a tax professional, before filing your returns, since the more favourable option depends on your overall income, deductions and interest outgo.
Example of Section 24(b) Deduction
Let us look at a simple example. Suppose Rahul takes a home loan for a house he lives in and is filing under the old tax regime. In the current financial year, his EMI includes INR 1.5 lakh towards the principal amount and INR 2.5 lakh towards the interest.
Since the house is self-occupied, his maximum allowed Section 24(b) deduction is capped at INR 2 lakh. He will use this INR 2 lakh to reduce his total taxable income. The remaining INR 50,000 of interest cannot be claimed. Had Rahul opted for the new tax regime instead, he would not have been able to claim any part of this interest deduction for his self-occupied property.
Section 24(b) vs Section 80C
Homeowners often get confused between these two popular tax provisions. When you pay your monthly EMI, it has two distinct parts, the principal repayment and the interest payment. You claim the interest portion under Section 24(b).
On the other hand, you claim the principal repayment portion under Section 80C. Section 80C has an overall maximum limit of INR 1.5 lakh per year, which also includes other investments like provident funds and life insurance, and it is available only under the old tax regime.
Conclusion
Understanding the rules around your home loan matters for sound financial planning. The relevant provisions can meaningfully reduce a homeowner's tax burden under the old tax regime, though this benefit largely disappears for self-occupied property under the new regime.
Whether you live in the house or rent it out, knowing how the Section 24(b) income tax provisions apply will help you plan your savings more effectively. Keep your loan statements ready and consult a tax expert to confirm the correct treatment each year, especially given ongoing changes to India's tax legislation.
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