What is the Interest on Home Loan Deduction Under Section 24?

Buying your own house is the dream of every living soul, but with the fear of paying interest, people just step back. Considering that, the government came with a new plan called, “Home loan deduction “under section 24, this Act was established under the Income tax act,1961 in India.

In this act you can get a deduction of 2 lakh on the interest payable to the government but not on the principal amount. This deduction helps reduce your taxable income, potentially lowering your tax liability. This deduction is available for loans that are taken for purchasing or constructing a residential property. 

Eligibility and Conditions for Interest on Home Loan Deduction Under Section 24

1. Eligibility: The deduction is available to individuals who are repaying a home loan for either self-owned or rented property.
2. Deduction Limit:
   • For self-occupied property, you can claim a deduction of up to ₹2 lakh per financial year.
   • The ₹30,000 limit applies to specific conditions, such as when construction is not completed within five years.
3. Conditions:
   • The loan must be taken from a financial institution or a recognized lender.
   • To be eligible for this deduction, the property should also be in your name and initial construction or purchase must have been completed within 5 years from the end of the financial year, when the Loan was taken. 
   • Also, you should hold the records of your loan repayments, like interest certificates given by the lender.
4. Documentation: To claim this deduction, you should hold the records of your loan repayments like interest certificates given by the lender.

Conditions for Claiming the Deduction 

Here are some condition for claiming the deduction:

• The loan has to be for buying, building and repair of a residential property.
• The residential property should either be in the name of the owner or must fetch rental income.
• You should not sell / transfer the property in that %:financial year of deduction claimed. If the property is sold within 5 years of claiming this deduction, then you will have to pay tax on benefits received under Section 24(b) in those previous years.
• The loan must be taken at the start of the financial year, i.e. on or after 1st April.
• For the deduction of the loan, the construction of the property must be completed within 5 years from the end of the financial year in which the loan was taken.

Types of Tax Deduction 

There are two types of Home Loan deduction:

1. Standard Deduction: A fixed amount will be deducted from your income that reduces your taxable income, and this is available to all eligible taxpayers. 
2. Interest on Home Loan: A deduction on the interest paid on a home loan, which can reduce your taxable income if you own a home and are paying interest on the loan.

How the Deduction Process Works

Under section 24b, you get the deduction on the interest paid on your home loan. The amount you get deducted in this Act depends on the type of property. 

Own property: In this you can get up to 2 lakh (or 30,000, whichever is applicable) per year.

Rented property: In this situation, the entire amount of interest will be waved off with no upper limits.

Scenario: 

Name: Priya
Annual Salary: ₹8,00,000
Interest on Home Loan: ₹1,50,000
Property type: Self-Owned Property

Steps to Calculate Taxable Income

1. Standard Deduction: ₹50,000
   • Gross Salary: ₹10,00,000
   • After Standard Deduction: ₹10,00,000 - ₹50,000 = ₹9,50,000
2. Home Loan Interest Deduction: ₹1,80,000 (but you can only claim up to ₹2,00,000 for self-occupied property)
   • Income After Standard Deduction: ₹9,50,000
   • Less Home Loan Interest Deduction: ₹1,80,000
   • Taxable Income: ₹9,50,000 - ₹1,80,000 = ₹7,70,000

After standard deduction and Home loan interest u/s 24, her taxable income comes to ₹7.70 lakh for Priya, This means that less of the salary her employer is giving to does not go for income tax.

Conclusion:

This process not just promotes home buying, however also assists property owners a lot more properly handle their monetary responsibilities. But in order for taxpayers to benefit fully from this novelty deduction and not throw themselves afoul of tax regulations, it is crucial they keep good records of their loan statements along with interest payments.