Maximising Tax Benefits with Section 24(b) of the Income Tax Act

Owning a home is a dream for many, and while the journey to homeownership can be exhilarating, the financial aspects often bring about a fair share of challenges. One such challenge is managing the expenses incurred through a home loan. Fortunately, the Indian government provides several tax benefits to home loan borrowers to alleviate some of this financial burden. One of the most significant provisions in this regard is Section 24(b) of the Income Tax Act. This section allows homeowners to claim deductions on the interest paid on home loans, thereby reducing their taxable income.

Understanding Section 24(b) of the Income Tax Act

Section 24(b) of Income Tax Act pertains to the deductions available on the interest component of a home loan. This section is particularly beneficial for those who have availed home loans for the purchase, construction, repair, renewal, or reconstruction of a property. The key highlights of this section include:

1. Deduction on interest paid: Under Section 24(b), taxpayers can claim a deduction of up to Rs. 2,00,000 per annum on the interest paid for a self-occupied property. For properties that are not self-occupied, there is no upper limit on the deduction amount.
2. Eligibility: The deduction is applicable only if the loan is taken for the purpose of purchasing, constructing, repairing, renewing, or reconstructing a property. Additionally, the construction or acquisition of the property must be completed within five years from the end of the financial year in which the loan was taken.
3. Pre-construction interest: Interest paid during the pre-construction period can also be claimed as a deduction. This interest is allowed in five equal instalments starting from the year in which the construction is completed or the property is acquired.
4. Loan purpose: The loan must be taken from a financial institution or any approved body for the purpose of purchasing or constructing a house. Loans taken for repairs or renewals are also eligible but have a lower deduction limit.
   

Benefits of Section 24(b) of the Income Tax Act

1. Reduces tax liability: One of the primary benefits of Section 24(b) of Income Tax Act is the reduction in tax liability. By claiming the deduction on the interest paid on a home loan, taxpayers can significantly lower their taxable income, resulting in substantial tax savings. This can be a major relief, especially for those in higher income brackets.
2. Encourages home ownership: The provisions under 24(b) of Income Tax Act encourage homeownership by making home loans more affordable. By offering tax deductions on the interest component of home loans, the government provides an incentive for individuals to invest in residential properties. This not only fulfills the dream of owning a home but also contributes to the overall growth of the housing sector.
3. Financial planning: Understanding the benefits under Section 24(b) of Income Tax Act can help in better financial planning. Home loan borrowers can factor in the tax deductions while calculating their overall expenses, which can aid in more effective budgeting and financial management. This can be particularly useful when planning long-term financial goals, such as retirement savings or investments.

How to claim deductions under Section 24(b) of the Income Tax Act

Claiming deductions under Section 24(b) of Income Tax Act is a straightforward process. Here are the steps involved:

1. Loan certificate: Obtain a loan certificate from your lender, which details the amount of interest paid during the financial year. This certificate is essential for claiming the deduction.
2. Self-occupied property: For a self-occupied property, the maximum deduction limit is Rs. 2,00,000. Ensure that the construction or acquisition of the property is completed within five years from the end of the financial year in which the loan was taken.
3. Non self-occupied property: For properties that are not self-occupied, there is no upper limit on the interest deduction. This can include rental properties or properties occupied by other family members.
4. Pre-construction interest: If you are claiming pre-construction interest, calculate the total interest paid during the pre-construction period and divide it into five equal instalments. The first instalment can be claimed in the year in which the construction is completed or the property is acquired.
5. Form 12BB: Submit Form 12BB to your employer if you want the tax deduction to be reflected in your monthly TDS (Tax Deducted at Source) calculation. This will ensure that your employer deducts the correct amount of tax each month.
6. Income tax return: Finally, while filing your income tax return, mention the total interest paid under the head “Income from House Property” and claim the deduction under Section 24(b) of Income Tax Act.

Explore Bajaj Housing Finance Home Loan

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