Income Tax Act Section 24: Home Loan interest deduction exemptions and benifits

Are you wondering what Section 24 of the Income Tax Act is and what deductions are available under it? Learn in detail about the deductions, exemptions, and terms and conditions applicable under Section 24 of the Income Tax Act.

Owning a home is a dream for many; however, purchasing a home requires meticulous planning and a substantial financial investment. Furthermore, due to skyrocketing property prices, buying a home without financial assistance has become even more challenging. Consequently, most people opt to take out a home loan; however, a home loan entails the burden of paying a significant monthly EMI. To assist you in realising your dream of home ownership, Section 24 of the Income Tax Act enables eligible borrowers to avail of tax benefits and deductions on the interest paid on their home loans.

In this blog, we will discuss in detail Section 24 of the Income Tax Act, the deductions available under it, and the prerequisites for claiming a deduction on home loan interest.

What is Section 24 of the Income Tax Act?

The Income Tax Act contains several sections that enable an individual to avail of tax exemptions on specific expenses and investments. Among the investment avenues typically emphasised under the Income Tax Act, investing in a home stands out as a key option. The Government of India regards housing as a basic necessity; consequently, various investments made towards acquiring a first home are exempt from taxation.

Section 24 of the Income Tax Act is a pivotal provision pertaining to home loans, under which an individual can claim a deduction on the interest paid on a home loan. Simply put, Section 24 of the Income Tax Act deals with the interest amount that an individual pays on a home loan. This specific section of the Income Tax Act covers ‘Deductions from Income from House Property.’ The deductions available under this section include the Standard Deduction and the interest paid on the loan.

Listed here are the categories considered to be income derived from residential property:

• If an individual rents out a house, the rental income derived from that house shall be considered as their income.
• If an individual owns a house and resides in it themselves, the deemed income from that property is considered to be nil.
• If an individual owns more than one property, the ‘Net Annual Value’ of all their residential properties shall be considered as their income, with the exception of the property in which the individual resides personally.

Note that income derived from rent, as well as income from the annual value of an additional residential property, is subject to income tax only after deductions have been applied under Section 24.

Section 24 of the Income Tax Act

Key Features of Section 24 of the Income Tax Act

Specifications	Section 24 of the Income Tax Act
Tax deductions allowed under Section 24	Two deductions allowed: – Standard deduction at 30%- Interest on the loan amount
Limit on tax deduction	– Rs 2 lakh for self-occupied property- No limit for non-self-occupied property
The loan amount can be used for	– Under Section 24 of the Income Tax, it can be used for repair, reconstruction, or renewal of the housing property. – In case of purchase and construction of property to be completed within 5 yrs.
Tax deduction can be claimed.	In case of reconstruction or renovation, the tax deduction under Section 24 of the Income Tax can be availed after the completion.

Types of Deductions under Section 24 of the Income Tax Act

Under Section 24 of the Income Tax Act, there are two types of tax deductions, and they are as follows:

• Standard Deduction: An eligible individual may claim a ‘Standard Deduction’ of 30% on the ‘Net Annual Value.’ This deduction does not apply to a ‘Self-occupied House,’ as the ‘Annual Value’ of a self-occupied house is zero, which implies that the standard deduction will also be zero. When purchasing a property, this standard deduction applies regardless of the actual expenses incurred on electricity, insurance, repairs, water systems, etc.
• Deduction on Interest on Loan: Any borrower who has availed a home loan for the construction, purchase, or renovation of a property is eligible to claim a deduction in income tax under Section 24 of the Income Tax Act. Therefore, if a loan is taken to undertake any of the aforementioned activities, the interest paid on the principal amount of the loan may be exempted from tax liability.

• Tax Deduction on Rental Income: Any individual who rents out their property can deduct 30% of its net annual value—or the income derived from rent—from their taxable income. This deduction helps the property owner offset the expenses incurred on the maintenance and management of the property.
• Pre-construction Interest: If you take out a loan to purchase or construct a house, you may claim a deduction on the interest paid during the pre-construction period. The total pre-construction interest—which includes the interest on the housing loan—must not exceed ₹2 lakh. This deduction on interest is allowed in five equal instalments, commencing from the financial year in which the house is purchased, or the construction is completed. This deduction does not apply to loans utilised for repairs or reconstruction purposes.

The following are the sub-clauses in this category:

• If you have taken out a loan for a property intended for your own residence, you can claim a tax exemption of up to ₹2 lakh.
• Even if you secured the loan prior to purchasing or constructing the property, you can still claim an exemption on the interest paid.
• If the property loan was taken out for repairs or reconstruction, you cannot claim a tax exemption until the repair work on the property is complete.

Exceptions Under Section 24 of  Income Tax

Under this section of the Income Tax Act, there are certain exceptional rules; let us discuss those exceptions.

• If you do not reside in your residential property yourself, you can claim an income tax deduction on the entire interest paid on your home loan, without any upper limit.
• If you do not reside in the property—perhaps living in a different city or town—and have rented out your home, you may be eligible for a tax exemption of up to ₹2 lakh on the interest paid on your home loan.
• No tax exemption is available for any brokerage fees paid to find a tenant or for any additional commissions paid to arrange the loan.
• Another important point is that you must purchase or complete the construction of your home within three years of availing the home loan; doing so will enable you to claim the maximum possible deduction on the loan interest.

Terms & Conditions To Claim Deduction on Home Loan Interest

To claim a tax deduction of up to ₹2 lakh under Section 24 of the Income Tax Act, there are specific terms and conditions that a taxpayer must fulfil; failure to do so will result in the tax exemption on interest being reduced to a mere ₹30,000. The conditions for claiming this exemption are as follows:

• The construction or purchase of the property must be completed within 5 years from the end of the financial year in which the loan was availed.
• A home loan taken on or after April 1, 1999, for the purpose of purchasing or constructing a house.
• The taxpayer must have availed a loan on or after April 1, 1999, for the reconstruction of an existing property or for home repairs.
• To claim a deduction on the interest amount paid on a home loan, the individual must possess an interest certificate.

How To Calculate Income Received From House Property?

Understanding and evaluating income derived from a housing property can sometimes be a bit challenging. To simplify this process for you, here is an illustrative example:

Mr Ankit availed a home loan of ₹4,00,000 and paid an annual interest of ₹2,00,000; additionally, while his housing property was under construction, he paid interest amounting to ₹1,50,000. He earns a monthly rental income of ₹30,000 from this property and pays ₹10,000 as municipal taxes. Let us calculate his income based on two key factors:

• Self-occupied property
• Rental property

Here is the formula for calculating the total income derived from house property:

Income from Property = Net Annual Value – Standard Deduction – (Home Loan Interest + Pre-construction Interest).

Particulars	Rented Property	Owned Property
Gross Annual Value (GAV) (Rs 30,000*12)	Rs 3,60,000	–
Minus: Municipal Taxes	Rs 10,000	–
NAV (Net Annual Value)	Rs 3,50,000	–
Minus: Standard Deduction (30% of Net Annual Value)	Rs 1,05,000	–
Minus: Interest paid on home loan	Rs 2,00,000	Rs 2,00,000
Minus: Interest paid on under construction (1/5th of Rs 1,00,000)	Rs 30,000	Rs 30,000
Total income from the property	Rs. 15,500	Rs 2,30,000

Section 24 of Income Tax, Section 80C, and Section 80EE

Section 24	Section 80C	Section 80EE
Section 24 of the Income-tax Act, 1961, takes into account the amount of interest paid by an individual on a home loan.	Section 80C of the Income Tax Act is essentially a provision that deals with various expenses and investments that are exempt from income tax.	Section 80EE allows income tax benefits on the interest portion of the residential house property loan availed from any financial institution.
The maximum deduction limit that you can claim from the Interest paid is Rs. 2,00,000.	It allows for a maximum deduction of up to Rs. 1.5 lakh every year from an investor’s total taxable income.	Under Section 80EE, you can claim a maximum deduction of Rs 50,000.

Section 24 Home Loan Interest Deduction: Old Tax Regime vs New Tax Regime

Choosing between the old and new tax regimes often depends on the deductions to which a taxpayer is entitled. Homeowners, in particular, should pay close attention to Section 24(b), as the rules regarding home loan interest differ under these two regimes.

Particulars	Old Tax Regime	New Tax Regime
Deduction on home loan interest for self-occupied property	Available	Generally not available
Maximum deduction limit	Up to ₹2 lakh per financial year	Not applicable
Benefit from pre-construction interest	Available, subject to conditions	Generally not available
Additional tax-saving opportunities with other deductions	Available	Limited
Suitable for taxpayers with significant deductions	Yes	Usually less beneficial
Suitable for taxpayers with minimal deductions	May not always be ideal	Often preferred
Lower tax rates	No	Yes
Need to maintain proof of deductions	Yes	Usually, fewer documents are required

The old tax regime is often preferred by homeowners who are paying substantial interest on home loans and regularly claim tax deductions. On the other hand, the new tax regime may be more suitable for individuals who do not have significant tax-saving investments or deduction options, and who prioritise lower tax rates along with a simplified tax-filing process.

Applicability of Deductions under Section 24

The table below highlights tax deductions under Section 24 of the Income Tax Act:

Application	Deduction Available
Rented property purchased with your own money	30% standard deduction on NAV
Self-occupied property purchased with a housing loan	Maximum deduction of Rs. 2 lakh on home loan interest paid in a financial year
A rented property purchased with a home loan	Total home loan interest

Final Words – Section 24 of the Income Tax Act

If you are planning to take a home loan or are currently repaying a home loan, it is important for you to understand all types of tax deductions, the exceptions under Section 24 of Income Tax, and the rebate that you can avail. Section 24 of the Income Tax Act allows you to claim tax exemption, and you must know how to make the most of Section 24 of the Income Tax Act to enjoy more savings while also having the security and a proud feeling of being a house owner.

Frequently Asked Questions