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Section 24(b) in India: How Home Loan Interest Cuts Your Tax Bill
If you have a home loan and earn rental income from a property — or live in your own house — Section 24(b) of the Income Tax Act 2025 lets you deduct home loan interest from your taxable income. The deduction is capped at ₹2 lakh per year on a self-occupied property with no cap for let-out property.
What is Section 24(b)?
Section 24(b) of the Income Tax Act 2025 allows a deduction for interest paid on borrowed capital used to acquire, construct, repair, renew, or reconstruct a house property. The interest must be on money borrowed from a bank, housing finance company, employer, or any other lender.
The deduction falls under Section 24, which covers all deductions from income from house property:
| Section | Deduction | Who can claim |
|---|---|---|
| Section 24(a) | 30% standard deduction | All property owners |
| Section 24(b) | Interest on borrowed capital | Property owners with a home loan |
Together, these two deductions reduce the taxable income from your house property.
Self-occupied property — the ₹2 lakh cap
If a property is occupied by you for your own residence and no rent is received or receivable, it is treated as self-occupied. The annual value is nil, but you can still claim home loan interest under Section 24(b).
The key rule: interest on a self-occupied property is deductible up to ₹2 lakh per financial year. This cap applies to the interest portion of your EMI, not the principal repayment.
What counts as self-occupied:
- Your primary residence where you actually live
- A property you own but cannot occupy because of your employment location (the Act allows this in some situations)
- One property you elect to treat as self-occupied when you own multiple properties
What does not count as self-occupied:
- A second home or holiday house that is left vacant (treated as deemed let-out)
- A property you rent out (treated as let-out property)
Let-out property — no interest cap
If you own a property and rent it out, the property is let-out. In this case, the Section 24(b) interest deduction has no upper limit. All the interest you pay on the home loan for that property is deductible — whether it is ₹1 lakh or ₹10 lakh.
The catch: the interest deduction can only be set off against the rental income from that same property. Any excess interest — interest that exceeds the rental income — can be carried forward for up to 8 years and set off against future rental income from the same property.
This is a significant advantage over the self-occupied cap. If you have a large home loan on a rental property, the full interest is working for you tax-wise.
Pre-construction interest — timing of the deduction
If you take a home loan to buy an under-construction property, you do not start paying full EMIs immediately. During the construction period, you may pay only interest or interest + part-principal.
Under the Income Tax Act 2025, this pre-construction interest (interest paid during the period when the property was under construction) is deductible in five equal instalments, starting from the year the construction is completed and the property is ready for occupation.
This is important because it means you cannot claim the full interest deduction in the year you took the loan — you must spread pre-construction interest over five years.
Example — pre-construction interest:
You took a home loan in April 2024. The property was completed and ready for occupation in March 2026. During the construction period (April 2024 to March 2026), you paid ₹8,00,000 in interest.
You can claim this ₹8,00,000 as:
- ₹1,60,000 per year for 5 years, starting from FY 2025-26 (the year the property was ready)
After possession, the regular annual interest on your EMI becomes deductible under Section 24(b) in the year it is paid.
How to calculate your Section 24(b) deduction
The Section 24(b) deduction is the actual interest you paid during the financial year on the home loan for the property.
To find your deduction:
- Get your annual interest certificate from your bank or housing finance company — this shows the total interest paid in the financial year
- Identify the property’s use: self-occupied (cap applies) or let-out (no cap)
- Apply the cap if the property is self-occupied
Important: Only interest on the acquisition or construction of the property qualifies. Interest on a loan taken for repairs, extensions, or improvements qualifies under Section 24(b) as well — but the property must already be owned.
Worked examples
Example 1 — Self-occupied property within the cap
Priya took a home loan of ₹35 lakh at 8.5% p.a. for 20 years. In FY 2025-26, she paid ₹2,85,000 as interest.
| Item | Amount |
|---|---|
| Interest paid in FY 2025-26 | ₹2,85,000 |
| Section 24(b) cap (self-occupied) | ₹2,00,000 |
| Deductible under Section 24(b) | ₹2,00,000 |
Priya saves at her slab rate:
- At 30% bracket: ₹2,00,000 × 30% = ₹60,000 saved
- At 20% bracket: ₹2,00,000 × 20% = ₹40,000 saved
The excess ₹85,000 of interest cannot be claimed in any other year — it is simply lost under the self-occupied cap.
Example 2 — Let-out property with full interest deduction
Vikram owns a 3BHK in Chennai and rents it for ₹40,000 per month. His home loan interest for FY 2025-26 is ₹6,50,000.
| Item | Amount |
|---|---|
| Annual rent received | ₹4,80,000 |
| Section 24(a) standard deduction (30%) | ₹1,44,000 |
| Section 24(b) interest deduction | ₹6,50,000 |
| Net income from house property | ₹4,80,000 − ₹1,44,000 − ₹6,50,000 = −₹3,14,000 |
Because the interest exceeds the rental income, Vikram has a loss of ₹3,14,000 from house property. This loss can be set off against other income (such as salary) in the same year, reducing his total tax liability further. The unused portion can be carried forward for up to 8 years.
Example 3 — Two properties, one self-occupied, one let-out
Anita owns two properties:
- Property A (self-occupied, Mumbai): home loan interest paid = ₹3,20,000
- Property B (let-out, Pune): home loan interest paid = ₹4,80,000, rent received = ₹22,000/month
Property A (self-occupied):
- Section 24(b) deduction: capped at ₹2,00,000
Property B (let-out):
- Annual rent: ₹2,64,000
- Section 24(a) deduction: ₹79,200
- Section 24(b) deduction: ₹4,80,000 (no cap)
- Net: ₹2,64,000 − ₹79,200 − ₹4,80,000 = −₹2,95,200 (loss)
Anita can set off the combined house property loss against her salary income.
Section 24(b) and the new tax regime
Under the Income Tax Act 2025, the new tax regime is the default. However, the Section 24(b) deduction on self-occupied property interest is available even in the new regime — unlike most other Chapter VIA deductions such as Section 80C or 80D.
This is one of the few deductions that survives the new regime. If you have a home loan and are in the new regime, you can still claim the ₹2 lakh interest deduction to reduce your taxable income.
For let-out property, the deduction applies under both regimes as well.
Use the income tax calculator to see how the Section 24(b) deduction affects your tax outgo under the new regime.
Common mistakes to avoid
Exceeding the self-occupied cap — the ₹2 lakh cap applies to the interest portion of your EMI, not the full EMI. Many taxpayers confuse the two. Your interest certificate from the bank shows exactly how much is interest vs principal.
Claiming interest on a property you do not own — the deduction belongs to the person who owns the property and is named on the loan. You cannot claim interest on a loan for someone else’s property.
Missing pre-construction interest instalments — if you bought an under-construction property, remember that pre-construction interest is spread over five years. Missing the first year means you lose that year’s portion.
Not electing the right self-occupied property — if you own multiple properties, only one can be self-occupied. Choose the one where the expected rent (or annual value) is lowest to minimise the tax impact of the others being treated as let-out.
Set-off vs carry-forward confusion — on let-out property, interest loss can be set off against other income in the same year. On self-occupied property, the interest deduction simply reduces your house property income (which is nil, so the deduction has no set-off benefit — it just reduces taxable income). Understand which situation applies to you before filing.
Frequently asked questions
Can I claim Section 24(b) if I take a home loan for a property that is not yet ready?
Yes. The interest you pay during the construction period is deductible, but it must be claimed in five equal instalments starting from the year the property is ready for occupation. Keep your interest payment receipts from the construction phase.
Can I claim Section 24(b) if I use my bonus or savings to part-prepay my home loan?
Yes. Part-prepayment reduces the outstanding principal, which reduces future interest. The interest certificate from your bank already reflects the lower interest for the year. You do not need to make any special claim — the bank calculates it.
What happens to the Section 24(b) deduction if I sell the property before repaying the loan?
If you sell the property and repay the home loan, the interest deduction ends in the year of sale. The deduction is available only for the period you owned and occupied or let the property.
Can I claim Section 24(b) on a home loan taken for a property owned by my spouse?
The property must be in your name and the loan must be in your name to claim the Section 24(b) deduction. If the property is jointly owned, both owners can claim interest on their respective shares of the loan.
Is the Section 24(b) deduction available on a loan taken to renovate or extend a property?
Yes. Section 24(b) covers interest on borrowed capital for acquisition, construction, repair, renewal, and reconstruction of a house property. A home improvement loan qualifies — but a loan taken for a property you do not already own does not.
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Sources
- Income Tax Act 2025 — Section 24, deductions from house property (incometaxindia.gov.in) (verified 2026-10-08)
- Income Tax Act 2025 — Section 19, interest on borrowed capital (incometaxindia.gov.in) (verified 2026-10-08)
- Income Tax Act 2025 — Section 18, annual value of house property (incometaxindia.gov.in) (verified 2026-10-08)
- Pre-construction interest — Income Tax Rules 2026 (incometaxindia.gov.in) (verified 2026-10-08)