Owning a home is a cherished dream for many in India, and with the skyrocketing property prices, securing a home loan has become an everyday necessity. Home loans often come with substantial Equated Monthly Instalments (EMIs), predominantly consisting of interest in the initial years. To alleviate the financial strain on homeowners, the Indian government provides tax relief through Section 24B of the Income-tax Act. This section offers deductions on home loan repayments’ interest and principal components, helping taxpayers reduce their tax liability while realizing their homeownership goals.
Section 24B grants a standard deduction of 30% on a property’s Net Annual Value (NAV). However, this deduction does not apply to self-occupied properties, where the NAV inherently amounts to zero.
Example: If you own a property rented out for ₹20,000 per month, your Gross Annual Value (GAV) would be ₹2,40,000 (₹20,000 * 12 months). If you have paid ₹10,000 as municipal taxes, your NAV would be ₹2,30,000 (GAV - Municipal Taxes), and the standard deduction applicable to this amount would be ₹69,000 (30% of NAV).
One of the primary benefits of Section 24B is the deduction of the interest paid on home loans. Taxpayers can claim this deduction for interest payments up to ₹2,00,000 within a financial year while calculating their total taxable income under the ‘income from house property’ head. It is essential to note that this deduction does not encompass any brokerage or commission paid to intermediaries or agents.
Example: Suppose you have taken a home loan for your self-occupied property. During a financial year, you paid ₹2,50,000 as interest on the loan. In this case, you can claim a deduction of ₹2,00,000 (the maximum limit) under Section 24B. The remaining ₹50,000 cannot be claimed as a deduction
Example: Let us say you took a home loan on April 1, 2005, and the construction of your house was completed on March 31, 2010. During the financial year 2010-2011, you paid ₹2,40,000 as interest on the loan. Since the construction was completed within the five-year limit, you can claim the entire interest amount of ₹2,40,000 as a deduction for that financial year.
If taxpayers do not meet the conditions mentioned above, they can claim only ₹30,000 as a deduction under Section 24B. This provision applies in cases where:
Example: Suppose you borrowed a home loan for repairs on January 1, 1998, and paid ₹40,000 as interest during a financial year. In this scenario, you can claim a maximum deduction of ₹30,000 under Section 24B for that financial year.
Section 24B also permits deductions for pre-construction interest. This becomes relevant when a home loan is taken for purchasing or constructing a house. Key points regarding pre-construction interest include:
Example: Let us say you took a home loan to construct a new house, and during the pre-construction period, you paid a total interest of ₹6,00,000. The construction was completed on May 5, 2019, for the financial year 2019-2020. In this case, you can claim a deduction of ₹1,20,000 (1/5th of ₹6,00,000) for the financial year 2019-2020 and similarly for the next four financial years.
While calculating total income, taxpayers can simultaneously claim a tax deduction for the interest payable on the loan under both Section 24B and Section 80EE. However, specific conditions apply to claim deductions under both sections, including:
Example: You can claim a tax deduction of up to ₹2,00,000 under Section 24B of the Income-tax Act for the interest on your home loan. Additionally, you can claim an extra ₹50,000 under Section 80EE if you satisfy the conditions mentioned above.
Income from house property can occur under three scenarios:
Example: Consider Mr. Arun, who has taken a home loan with an EMI of ₹36,000 per month. If his property is self-occupied, his total EMI for the year amounts to ₹4,32,000. He paid ₹2,64,000 as interest and ₹1,68,000 towards the principal amount. Additionally, he paid ₹2,00,000 in interest during the pre-construction period. In this case, his income from the house property under self-occupied status would be (-₹2,60,000). A loss of ₹2,00,000 would be carried forward for future set-offs (up to 8 years) exclusively against income from house property.
The maximum limits for Section 24B deductions are applicable on an assessee basis, not a property basis. Therefore, if an assessee owns two or more house properties, the total deduction for that assessee remains the same.
Interest for the pre-construction or pre-acquisition period is allowed as a deduction in 5 equal instalments, starting from the year of house completion. However, this deduction is unavailable if the loan is used for repairs, renewal, or reconstruction. The pre-construction/acquisition period begins from the date of borrowing. It ends on the last day of the preceding financial year in which the construction is completed.
If a home loan is taken jointly, each co-borrower can claim a deduction in proportion to their share in the loan. To qualify for this deduction, co-borrowers must also be co-owners of the property. Suppose an assessee is a co-owner and repaying the entire loan individually. In that case, they can claim a deduction for the entire interest amount paid by them. The deduction limit for self-occupied property applies individually to each co-borrower, allowing each to claim up to ₹2,00,000 or ₹30,000 as applicable. For let-out properties, there is no limit on deductions.
| Aspect | Section 24B | Section 80C |
|---|---|---|
| Tax Deduction Allowed | The interest component of a home loan | The principal component of a home loan |
| Basis of Tax Deduction | Accrual basis | Payment basis |
| Maximum Tax Deduction | No limit for let-out properties and ₹2,00,000 (reduced to ₹30,000 under specific conditions) for self-occupied properties | ₹1.5 Lakhs |
| Purpose of Loan | Related to residential house property | Applicable to any house property |
| Completion Period | Property should be completed within 5 years (reduced to 3 years under specific conditions) | No restriction |
| Deduction for Pre-Construction Interest | Allowed in 5 equal installments | No restriction |
