How Home Loan Interest Deduction Under Section 24 Can Reduce Your Tax Liability

Buying a home is one of the most significant financial commitments an individual makes. What many homeowners do not fully realise is that the interest paid on a Home Loan can meaningfully reduce their taxable income each year. Section 24 of the Income Tax Act, 1961 provides this benefit, and understanding it well can help you plan your finances more effectively. This guide covers everything you need to know, from eligibility and limits to how the new tax regime affects your claim.

What Is Section 24 of the Income Tax Act?

Section 24 of the Income Tax Act, 1961 deals with deductions from income under the head "Income from House Property." It allows property owners to reduce their taxable income by claiming deductions on the interest paid on a housing loan.

There are two components under Section 24:

• Section 24(a): A standard deduction of 30% of the net annual value of a let-out property, allowed without requiring proof of actual maintenance expenses.
• Section 24(b): A deduction on the interest paid on a Home Loan, subject to conditions and limits depending on the type of property and tax regime chosen.

Section 24(b) is the provision most relevant to Home Loan borrowers and forms the core of what is commonly referred to as the Home Loan interest deduction.

What Types of Income Fall Under "Income From House Property"?

Before understanding the deduction, it helps to know what counts as income from house property under the Income Tax Act.

• Rental income received from a property that has been let out to tenants
• Notional or deemed rental income from properties that are not self-occupied and not actually rented out (applicable when you own more than two properties)
• For self-occupied properties, the annual value is treated as nil, which can result in a net loss when interest deductions are applied

The net annual value is calculated by deducting municipal taxes paid from the gross annual value of the property.

How Much Deduction Can You Claim Under Section 24(b)?

The amount you can claim as a housing loan interest exemption depends on how the property is used.

It is important to note that the deduction applies only to the interest component of your EMI. The principal repayment is eligible for a separate deduction under Section 80C of the Income Tax Act.

If you want to estimate how your EMI is split between principal and interest, using a Home Loan EMI Calculator can give you a clear picture of your repayment schedule.

Who Is Eligible to Claim the Home Loan Interest Deduction?

To claim the income tax deduction on Home Loan interest under Section 24(b), the following conditions must be met:

• The loan must be taken for the purchase, construction, repair, renewal or reconstruction of a residential property
• The loan must be borrowed from a recognised financial institution such as a bank, Non-Banking Financial Company or registered housing finance company
• The borrower must be the legal owner or co-owner of the property
• An interest certificate from the lender must be available at the time of filing
• The property must be used for residential purposes only; commercial properties are not eligible
• The construction or purchase must be completed within five years from the end of the financial year in which the loan was sanctioned, to claim the full ₹2 lakh deduction

Loans taken from friends, relatives or informal sources do not qualify for this deduction.

Also Read: Home Loan: All You Need to Know

What Is Pre-Construction Interest and How Is It Claimed?

When you take a Home Loan for a property that is still under construction, you begin paying interest before you receive possession. This interest paid during the construction phase is called pre-construction interest.

You cannot claim this interest as a deduction in the year it is paid. However, once construction is completed and possession is obtained, the total pre-construction interest is aggregated and allowed as a deduction in five equal annual instalments, starting from the year of possession.

For example, if you paid ₹5 lakh as interest during the construction period and received possession in the financial year 2024-25, you can claim ₹1 lakh per year from 2024-25 to 2028-29, subject to the overall ₹2 lakh cap for self-occupied properties.

This benefit is available only for loans taken for purchase or construction, not for renovation or repair.

How Does a Joint Home Loan Affect the Deduction?

When a Home Loan is taken jointly, the tax benefit can be significantly higher. If both applicants are co-borrowers as well as co-owners of the property, each individual can independently claim the interest deduction.

For a self-occupied property, each co-owner can claim up to ₹2 lakh, effectively making the combined deduction ₹4 lakh per year. For let-out properties, each co-owner can claim their proportionate share of the actual interest paid.

This structure makes joint Home Loan particularly useful for couples or family members purchasing a home together, as it allows both individuals to reduce their respective taxable incomes.

To be eligible, both individuals must be:

• Co-borrowers on the loan
• Co-owners of the property
• Actively repaying the loan from their own income

Section 24(b) and the New Tax Regime: What You Need to Know

The introduction of the new tax regime under the Finance Act, 2020 changed how deductions are treated. Understanding the difference between the two regimes is essential before deciding which one to opt for.

Old Tax Regime

Under the old tax regime, Section 24(b) deductions are fully available. Homeowners can claim:

• Up to ₹2 lakh per year on interest for self-occupied properties
• Full interest paid for let-out properties, subject to set-off limits
• Pre-construction interest in five equal instalments after possession
• Additional deductions under Section 80C (principal repayment), Section 80EE and Section 80EEA, if eligible

This regime is generally more beneficial for borrowers who have significant Home Loan interest outgo and also claim other deductions such as HRA, Section 80D or Section 80C investments.

New Tax Regime

Under the new tax regime, the Home Loan interest deduction for self-occupied properties under Section 24(b) is not available. This is a significant difference that borrowers must factor into their tax planning.

However, for let-out properties, the interest deduction may still be applicable as it is adjusted against rental income before arriving at the taxable income from house property.

The new regime offers lower tax slab rates but removes most exemptions and deductions. It is generally more suitable for individuals with limited investments and minimal eligible deductions.

Taxpayers should calculate their tax liability under both regimes before making a decision. The choice of regime can be made at the time of filing the Income Tax Return each year for most individuals.

How to Claim the Home Loan Interest Deduction When Filing Your ITR

Claiming the deduction under Section 24(b) is a straightforward process if you have the right documents in place.

Step-by-Step Process

1. Obtain the annual interest certificate from your lender. This document shows the total interest paid during the financial year and is essential for your claim.
2. Choose the correct ITR form. Salaried individuals with one residential property typically use ITR-1 (Sahaj). Those with multiple properties or capital gains income should use ITR-2.
3. Navigate to the "Income from House Property" section in the ITR form. Enter the property type (self-occupied or let-out), the annual interest paid and any pre-construction interest instalment applicable.
4. Enter the eligible deduction amount. For self-occupied properties, this is capped at ₹2 lakh. For let-out properties, enter the actual interest paid.
5. Verify and submit your return using Aadhaar OTP, net banking or any other available method.

Documents to Retain for Verification

While documents are not uploaded with the ITR, you should keep the following on record:

• Home Loan interest certificate from the lender
• Loan sanction letter
• Possession or completion certificate
• Property ownership documents (sale deed or registration certificate)
• Proof of co-ownership, if claiming as a joint borrower

The Income Tax Department may request these documents during scrutiny, so it is advisable to maintain them for at least six years.

Also Read: Tax Benefits on Home Loan: Guide to Section 80C & 24(b) Deductions

Common Mistakes to Avoid When Claiming the Deduction

Many taxpayers miss out on the full benefit of the Home Loan interest deduction due to avoidable errors. Here are some of the most common ones:

• Not obtaining the interest certificate from the lender before filing
• Claiming the deduction before construction is completed and possession is obtained
• Confusing the interest deduction under Section 24(b) with the principal deduction under Section 80C
• Assuming the deduction is available under the new tax regime for self-occupied properties
• Not claiming pre-construction interest in five equal instalments after possession
• Failing to check whether the five-year construction completion condition has been met, which reduces the cap to ₹30,000

Reviewing your loan statement and interest certificate carefully before filing can help you avoid these errors.

Can You Claim Both HRA and Home Loan Interest Deduction?

Yes, it is possible to claim both House Rent Allowance (HRA) and the Home Loan interest deduction in the same financial year, provided the conditions for each are independently met.

This situation typically arises when a salaried individual owns a property in one city but lives on rent in another city due to employment. In such cases, the individual can claim HRA for the rent paid and also claim the interest deduction under Section 24(b) for the Home Loan on the owned property.

Both claims are evaluated independently and are not mutually exclusive under the old tax regime.

Final Thoughts

Section 24(b) of the Income Tax Act is one of the most meaningful tax provisions available to Home Loan borrowers in India. By reducing taxable income through the Home Loan interest deduction, it makes homeownership more financially manageable over the long term.

Whether you own a self-occupied property or a let-out one, understanding the applicable limits, eligibility conditions and the impact of the tax regime you choose can help you make better financial decisions. For those with significant interest outgo, the old tax regime often provides greater overall savings when combined with other deductions.

If you are planning to purchase a home and want to understand how your loan repayment will be structured, a Home Loan EMI Calculator can help you plan your finances before you apply.

Godrej Housing Finance offers Home Loans designed to support your homeownership journey with a quick digital sanction process and easy customer service, so you can focus on what matters most.

Apply now for Home Loan.

FAQs

Q.1. What is the maximum Home Loan interest deduction allowed under Section 24(b)?

A. For a self-occupied property where construction is completed within five years of the loan sanction, the maximum deduction is ₹2 lakh per year. If construction is delayed beyond five years, the limit reduces to ₹30,000. For let-out properties, there is no upper limit on the interest deduction.

Q.2. Is the Home Loan interest deduction available under the new tax regime?

A. For self-occupied properties, the deduction under Section 24(b) is not available under the new tax regime. For let-out properties, the interest may still be adjusted against rental income. Taxpayers should compare both regimes before deciding which one to opt for.

Q.3. Can both co-borrowers claim the Home Loan interest deduction separately?

A. Yes, if both co-borrowers are also co-owners of the property and are independently repaying the loan, each can claim the deduction. For a self-occupied property, each co-owner can claim up to ₹2 lakh, making the combined benefit up to ₹4 lakh per year.

Q.4. How is pre-construction interest claimed under Section 24(b)?

A. Pre-construction interest is the total interest paid before possession is obtained. It cannot be claimed during the construction period. After possession, it is divided into five equal instalments and claimed annually, subject to the ₹2 lakh cap for self-occupied properties.

Q.5. What documents are needed to claim the Section 24(b) deduction?

A. You need the annual interest certificate from your lender, the loan sanction letter, the possession or completion certificate and property ownership documents. These are not uploaded with the ITR but must be retained for potential verification by the Income Tax Department.

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