Section 24 – Tax Benefits on Interest on Housing Loan
The Income Tax benefits on interest on Housing loan are covered under Section 24 and Section 80EE of the Income Tax Act. The tax benefits under section 80EE are applicable only for first time home buyers whereas tax benefits under Section 24 are available for everyone. To save income tax under Section 24, you are allowed to reduce the income by the amount of interest paid on Housing Loan to an extent in addition to certain conditions. Here is the detailed guide on how to save taxes under section 24 of Income Tax Act.
Conditions to Claim Tax benefits on Housing Loan Interest under Section 24
To avail the tax benefit of interest on Housing Loan under Section 24 of Income Tax Act, you must determine if the house property is:
- Let out for Rent, Or
- Own residence / Self-occupied.
Each scenario is discussed below:
1. Let Out for Rent (Section 24)
If you have let out your house/flat for rent, then the full amount of interest paid on home loan during a financial year is allowed to be deducted from the income earned.
Example
If A receives house/flat rent of Rs. 3,00,000 per annum and A has paid Rs. 2,40,000 as interest on housing loan during financial year 2014-15, then A is allowed to deduct Rs. 2,40,000 from A’s rental income of Rs. 3,00,000.
2. Own Residence / Self-Occupied (Section 24)
If the housing loan is availed for the property which is being used for own residence or is self-occupied then the tax benefits of interest on housing loan can only be taken if the property is fully constructed and ready to move.
Let us discuss this topic in different cases:
i) Tax benefits on housing loan taken for Purchase / Construction of Property
You should find out the time taken for completing the construction from the date of availing the loan.
If the construction is completed within three years of availing the loan, a maximum deduction of Rs. 2,00,000 per annum is allowed (as stated in the table shown below). If the construction has taken more than three years to complete, a maximum deduction of Rs. 30,000 is allowed per annum.
| Cases |
Deductions under Section 24 |
| If the property is already constructed and is ready to move. |
Minimum of the following:
- Rs. 2,00,000 lakhs (Rs. 1,50,000 lakhs upto the Financial Year 2013-14)
- Interest for the year
|
| If construction is completed within three years from the end of the Financial Year in which the loan was taken. |
Minimum of the following:
- Rs. 2,00,000 lakhs (Rs. 1,50,000 lakhs up to the Financial Year 2013-14)
- Actual interest for the year
|
| If construction is not completed within three years from the end of the Financial Year in which the loan was taken. |
Minimum of the following:
- Rs. 30,000 Or
- Actual interest paid for the year
|
ii) Interest on housing loan paid during the construction period
As already explained the Income Tax benefits of interest on Housing Loan can only be availed if the property is Fully Constructed and ready to move. So, you may be confused whether you can claim deduction of interest on housing loan paid during the time in which the property is in construction phase. In this scenario, you are not allowed to claim deduction of interest on housing loan, if the property is not constructed. However, after the completion of construction, you can add the total interest paid during the construction period and one-fifth (1/5) of this amount is allowed as deduction for five consecutive years starting from the year in which the construction was completed. Also, note that this one-fifth (1/5) amount plus interest paid during that financial year cannot exceed Rs. 2,00,000.
Example
Suppose, Karthik availed loan of Rs. 15,00,000 for construction/acquisition of House Property on November 1, 2010 and the construction is completed on May 18, 2014.
Karthik has paid the interest as follows:
| Financial Year |
Amount |
| 2011 – 2012 |
Rs. 75,000 |
| 2012- 2013 |
Rs. 1,50,000 |
| 2013 – 2014 |
Rs. 1,45,000 |
| 2014 – 2015 |
Rs. 1,40,000 |
The following scenarios will explain how Karthik can claim deductions under Section 24:
| Scenario |
Financial Year |
Amount |
Reason |
| 1 |
2011 – 2012 |
Nil |
House was not constructed |
| 2 |
2012 – 2013 |
Nil |
House was not constructed |
| 3 |
2013 – 2014 |
Nil |
House was not constructed |
| 4 |
2014 – 2015 |
2,14,000 |
House was not constructed |
| Interest Paid for 2014-15 is:Rs. 1,40,000.
Add 1/5th of interest paid during Pre-construction period : Rs. (75000+150000+145000) = Rs. 74,000.
5
Total Eligible Interest :Rs. 1,40,000 + Rs. 74,000 = Rs. 2,14,000.
|
However, the above deduction will be subject to a maximum limit of Rs. 2,00,000 per annum.
iii) Tax benefits on the housing loan taken for Renovation of Property
If you have availed any housing loan for repairs or renovation, the maximum amount of deduction is only Rs. 30,000 or actual interest paid or whichever is lower.
To summarize, the maximum Income Tax Deduction allowed under Section 24 in case of a Self-Occupied property is subject to a maximum limit of Rs. 2,00,000 (limit was increased from Rs. 1,50,000 to Rs. 2,00,000 in the budget 2014).
In case, the property for which the housing loan has been taken is rented, no maximum limit has been set and thus the taxpayer can avail deduction on the complete amount of interest under Section 24.
Use our Section 24 Deduction Calculator to know your deductions on interest on housing loan under Section 24.
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