How to Claim Deductions Under Section 24(b) for Home Loan Interest

Owning a home is a dream for many, but the financial commitment of a home loan can be daunting. Fortunately, the Indian government provides significant tax relief to homeowners through Section 24(b) of the Income Tax Act. This provision allows you to claim deductions on the interest paid on your home loan, reducing your overall tax burden and making homeownership more affordable. Here’s a detailed guide on how you can claim these deductions, the eligibility criteria, documentation required, and tips to maximize your tax benefits.

What is Section 24(b)?

Section 24(b) of the Income Tax Act, 1961, enables individuals to claim a deduction on the interest paid on borrowed capital used for acquiring, constructing, repairing, renewing, or reconstructing a residential property. This provision is highly beneficial for those involved in income tax filing, as it helps reduce the overall taxable income. The deduction under Section 24(b) is applicable whether the property is self-occupied, let out, or deemed to be let out, making it a key consideration during tax computation and filing.

Eligibility Criteria for Claiming Deduction

To claim a deduction under Section 24(b), you must fulfill the following conditions:

• Purpose of Loan: The loan should be taken for the purchase, construction, repair, renewal, or reconstruction of a residential property.
• Ownership: You must be the owner or co-owner of the property, and the loan should be in your name.
• Completion of Construction: For self-occupied properties, the construction or acquisition must be completed within five years from the end of the financial year in which the loan was taken.
• Interest Certificate: You should obtain an interest certificate from your lender, specifying the interest paid or payable for the relevant financial year.

Maximum Deduction Limits Under Section 24(b)

The deduction limits under Section 24(b) depend on the type of property and the purpose of the loan:

• Self-Occupied Property: You can claim a maximum deduction of ₹2,00,000 per annum on the interest paid, provided the loan is taken for purchase or construction after April 1, 1999, and the construction is completed within five years.
• Let-Out or Deemed Let-Out Property: There is no upper limit on the interest deduction for let-out or deemed let-out properties. However, the overall loss from house property that can be set off against other income is capped at ₹2 lakh per annum.
• Loan for Repairs/Renovation: If the loan is taken for repairs, renewal, or reconstruction, the maximum deduction is ₹30,000 per annum.

What Qualifies as Interest for Deduction?

Only the interest portion of your home loan EMI is eligible for deduction under Section 24(b). The principal repayment is not covered under this section (it is covered under Section 80C). The deduction can be claimed on:

• Regular interest paid during the year
• Pre-construction interest (in five equal installments from the year of completion)
• Service fees, brokerage, or commission directly related to the loan (if included in the interest certificate)

Penalties or interest on unpaid interest are not eligible for deduction.

Step-by-Step Process to Claim Deduction Under Section 24(b)

1. Obtain the Interest Certificate

Request an annual interest certificate from your lender. This document will specify the total interest paid or payable for the financial year.

2. Ensure Property Ownership and Completion

Make sure the property is registered in your name and that the construction or purchase is completed within the required time frame.

3. File Your Income Tax Return (ITR)

While filing your ITR, declare the interest paid under the ‘Income from House Property’ section. For self-occupied properties, you can claim up to ₹2 lakh; for let-out properties, you can claim the entire interest paid.

4. Submit Required Documents

Keep the following documents handy:

• Interest certificate from the lender
• Loan sanction letter
• Proof of property ownership (sale deed, registration papers)
• Possession letter (especially for pre-construction interest claims)

5. Claim Pre-Construction Interest

If you paid interest before the completion of the property, you can claim this amount in five equal installments starting from the year the construction is completed.

6. For Co-Owners and Co-Borrowers

If you and your spouse or another family member are co-owners and co-borrowers, each can claim a deduction up to ₹2 lakh (for self-occupied property), provided both share the loan and ownership.

Additional Tax Benefits for Home Loan Borrowers

• Section 80C: Apart from Section 24(b), you can claim up to ₹1.5 lakh per annum for principal repayment under Section 80C.
• Section 80EE/80EEA: First-time homebuyers may be eligible for additional deductions on interest paid, subject to certain conditions.

Tips to Maximize Your Tax Savings

• Timely Completion: Ensure the property is completed within five years to avail the maximum deduction.
• Maintain Documentation: Keep all relevant documents, including the interest certificate and property papers, organized and accessible.
• Consult a Tax Advisor: If you have multiple properties or complex loan arrangements, consult a tax expert to optimize your claims.
• Joint Loans: If you are a co-borrower, ensure that the loan repayment is being made from a joint account to avoid disputes during tax filing.

Frequently Asked Questions

Can I claim both HRA and Section 24(b) deduction?
Yes, you can claim both House Rent Allowance (HRA) and Section 24(b) deduction if you fulfill the eligibility criteria for both.

Is there any limit for let-out properties?
There is no upper limit on the interest deduction for let-out properties, but the loss from house property that can be set off against other income is capped at ₹2 lakh per annum.

What if I have two home loans?
You can claim deductions for interest paid on multiple home loans for different properties, subject to the maximum limits per property.

Conclusion

Section 24(b) of the Income Tax Act provides a valuable opportunity for homeowners to reduce their tax liability by claiming deductions on home loan interest. By understanding the eligibility requirements, maintaining proper documentation, and following the correct procedure, you can maximize your tax savings and make your journey to homeownership more affordable. For complex cases or multiple properties, consulting a tax professional is always recommended.