Home Loan Tax Benefits Under Section 24(b)

Section 24B of the Income Tax Act permits individuals to avail a tax deduction on the interest of their Home Loans. For many, having a home is their childhood dream, but the financial burden that comes with it is challenging. This is when a home loan serves as an economic tool to help alleviate the financial burden. 

However, home loans also come with interest, which is the cost of borrowing the money, and such interest can eat up half of your monthly income. But as a sign of relief for NRIs and Indian residents, the government of India has introduced Section 24(b) of the Income Tax Act, which offers a home loan interest deduction. 

In this blog, we will discuss how NRIs can use Section 24(b), including its eligibility criteria, deduction limit, benefits, and more.

What is Section 24(b) of the Income Tax Act?

Section 24(b) of the Income Tax Act allows taxpayers to claim a tax exemption on the interest paid on a home loan issued for the residential property construction, renovation, or purchase.

For Non-resident Indians, using this section can lead to major tax savings when it comes to Indian property investments. The deduction under section 24(b) is available on both the rented houses as well as the self-occupied properties; however, the only condition is that the loan must be sanctioned either on or before April 1, 1999.

What is the eligibility criteria for deduction under Section 24(b)?

For an individual to claim a deduction under section 24(b), they have to stand on the eligibility criteria mentioned below:

• The home loan should be taken either on or before April 1, 1999. 
• The home loan shall be put towards constructing, renovating an existing home, or purchasing a new home.
• The construction project must be completed within five years from the end of the financial year in which the loan was sanctioned. Similarly, the purchase of a residential property must be completed within the set timeframe of five years.
• Lastly, the taxpayer must have an interest certificate that states the total interest that is payable on the loan.

What is the maximum deduction limit under section 24(b)?

The deduction limit under section 24(b) of the Income Tax Act is Rs 2,00,000 on the interest component paid towards the home loan. Now that we know the deduction applies to both the rented house and the self-occupied ones. But in some instances, the limit of deduction under this section reduces to Rs 30,000. Such cases are:

• If the home loan was sanctioned before April 1, 1999, for any use related to a residential property. 
• If the loan was sanctioned after April 1, 1999, for any use other than acquisition or construction. 
• Lastly, if either the purchase or the construction of the house is not completed within the time frame of five years.

What are the benefits of the Home Loan Interest Deduction?

The following are the benefits of the home loan interest deduction under section 24(b):

Taxable income is reduced: One of the major benefits of the deduction on the home loan is that it reduces your overall taxable income. Once the interest paid on your home loan has been deducted from your gross income, it reduces your gross taxable income, and then taxes are calculated. This deduction helps you save a significant amount on your home loan, especially for those in higher tax slabs. 

Increased savings: Reduced taxable income means more money to save for other financial goals. By making the most of tax benefits, Income Tax sections and schemes introduced by the government, you can redirect the deducted amount towards building an emergency fund or investing in some other assets. 

Financial Planning: A home loan plays a crucial role in the overall financial management of a household. As an individual, if you know that the potential income tax deduction is available for you under section 24(b) of the Income Tax Act, you can make an informed decision about how it will impact your overall finances. 

Home loan interest deduction example

Let us understand the entire concept by a simple example.

Say Mr Aman took a home loan of Rs 50 Lakhs at an interest rate of 8.5% for 20 years. Your equate monthly installment (EMI) calculation to approximately Rs 43,391. 

Now, out of the total home loan EMI, a significant portion goes towards the interest amount of the home loan. In contrast, the remaining portion goes towards the principal loan amount. Let us say that during the first year of repayment, the total interest amount paid by Mr. Aman is Rs 3 lakh. 

According to section 24(b) of the Income Tax Act, the taxpayer can claim a deduction on the interest component of the home loan paid to up to Rs 2 lakh. Hence, in this case, Mr Aman can avail the deduction of Rs 2 lakh and can reduce his taxable income by Rs 2 lakh. 

How Savetaxs can help

By making the most out of Section 24(b) of the Income Tax Act, as an NRI taxpayer in India, you can make significant tax savings and ease your residential home financial burden.

However, for NRIs buying a home in India has never been easy, but we at Savetaxs will make the entire process feel like a cakewalk to you. We have been serving NRIs for decades, and our satisfied client base speaks volumes. 

We serve our clients 24/7,across all time zones. Hence, contact us today for an NRI tax expert consultation and save big on your home purchase. 

*Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult with either a Chartered Accountant (CA) or a professional Company Secretary (CS) from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.