Section 24(b) — Home Loan Interest

What is Section 24(b)?

Section 24 of the Income Tax Act, 1961 deals with deductions allowed against income from house property. Section 24(b) specifically allows a deduction for interest paid on borrowed capital used for the purchase, construction, repair, renewal or reconstruction of a house property. The deduction is one of the largest individual tax breaks available to a salaried Indian, and historically was a key driver of home ownership in metros.

Section 24(b) operates differently for self-occupied and let-out property. For self-occupied property, the deduction is capped at ₹2,00,000 per year and is available only under the old tax regime. For let-out property, the entire interest is deductible against rental income with no cap, but the overall house property loss available for set-off against salary in the same year is restricted to ₹2,00,000 by Section 71.

Eligibility criteria

To claim Section 24(b), all of the following must apply:

• The taxpayer is the legal owner of the house property (or co-owner — the deduction is then split in the ownership ratio).
• The loan is taken from a financial institution, NBFC, employer, or even a private lender — unlike Section 80C, the lender does not have to be a bank.
• The loan is for the purchase, construction, repair, renewal or reconstruction of the property.
• For the full ₹2 lakh self-occupied cap, the loan must be taken on or after 1 April 1999 for purchase or construction, and the construction must be completed within five years from the end of the financial year in which the loan was taken.
• For self-occupied property, the taxpayer has chosen the old tax regime.

The interest can be claimed even if the property is in the joint name of spouses. Each co-owner who is also a co-borrower can claim Section 24(b) up to ₹2 lakh in their own return — effectively ₹4 lakh for a couple — provided each contributes to the EMI.

Maximum deduction / formula

Pre-construction interest: Interest paid during the construction period (before the property is ready for possession) is allowed in five equal annual instalments starting from the year of completion, subject to the overall ₹2 lakh self-occupied cap. So the ₹2 lakh ceiling effectively includes both current-year interest and the relevant fifth of pre-construction interest.

Worked example

Consider Vikram, who took a ₹60 lakh home loan at 9% in April 2024 for a self-occupied flat in Pune. His annual interest in FY 2025-26 is approximately ₹5,30,000.

Under the old tax regime:

• Interest paid: ₹5,30,000
• Section 24(b) deduction: ₹2,00,000 (capped)
• Disallowed interest: ₹3,30,000 (lost — no carry-forward for self-occupied)

In the 30% slab, this saves ₹62,400 (30% × ₹2,00,000 + 4% cess) in tax for the year. He can also claim the principal portion (say ₹70,000) under Section 80C, adding another ₹21,840 of tax saving (subject to the ₹1.5 lakh 80C limit being available).

Under the new tax regime:

• Section 24(b) deduction for self-occupied: ₹0
• Tax saving from home loan interest: ₹0

The annual rupee difference between the two regimes for Vikram is therefore approximately ₹62,400 from Section 24(b) alone, before factoring in Section 80C, 80D and HRA.

Old regime vs new regime applicability

The Section 24(b) treatment under the new regime is one of the most important features to understand:

For salaried employees with self-occupied home loans, the Section 24(b) deduction is often the single largest tax break and the deciding factor between the two regimes. A ₹60-80 lakh home loan in the early years carries enough interest to fully utilise the ₹2 lakh cap, which combined with Section 80C, 80D, HRA and 80E often pushes the old regime ahead of the new for the loan’s first decade.

Common mistakes

1. Claiming Section 24(b) for self-occupied property under the new regime. This is the most common error since the new regime became the default in FY 2023-24. The deduction simply does not exist for self-occupied property under the new regime.
2. Not splitting the deduction between co-owners correctly. If both spouses are co-owners and co-borrowers, the deduction is shared in their actual contribution ratio to the EMI, not equally by default.
3. Missing pre-construction interest claims. Interest paid during the construction period is often forgotten and never claimed. It should be claimed in five equal instalments from the year of possession.
4. Construction not completed within five years. If construction overruns the five-year window, the cap drops from ₹2 lakh to ₹30,000. This trips up many under-construction property buyers when projects are delayed.
5. Claiming for a second self-occupied property treated as let-out. From FY 2019-20, a taxpayer can declare two properties as self-occupied. The ₹2 lakh cap still applies as a combined limit across all self-occupied properties — not per property.
6. Loan from an unrecognised source. Loans from family members do qualify under Section 24(b) (unlike Section 80C where only specified institutions count), but interest payment needs to be substantiated through bank transfers and TDS deduction at 10% under Section 194A if the lender is not a bank.

How Omnivoo helps

Omnivoo captures home loan interest declarations from employees during the annual investment-proof window, validates the ₹2 lakh self-occupied cap, splits deductions correctly across co-owners and co-borrowers, and applies the deduction only when the employee has chosen the old tax regime. For employees on the new regime, the platform automatically suppresses the deduction during monthly TDS calculation to prevent year-end shortfalls. Form 16 Part B reflects the deduction precisely, with the supporting interest certificate retained in the employee record for audit purposes.

For more on India payroll TDS rules, see our TDS on salary guide.