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Section 24B of Income Tax Act: Deductions of Interest on Housing Loan

What Is the Maximum Deduction Limit Under Section 24B?

What Is the Deduction Limit of a Co-Borrower of a Home Loan?

How to Calculate Tax Under Section 24B?

 

Let’s take an example to compute tax deduction, following the guidelines of Section 24B of the Income Tax Act:

Ms Reema earns an annual salary of ₹ 12,00,000. Apart from it, she earns a rental income of ₹ 2,00,000. On 24th June 2021, she borrowed a loan in which the interest component is ₹ 2,50,000 in a financial year. She invests in tax-savings schemes, where she can avail a maximum deduction of up to ₹ 1,50,000 under Section 80C, whereas the maximum deduction limit under Section 24B is ₹ 2,00,000.

Now, the calculation is as follows:

Particulars

Value

Annual salary

₹ 12,00,000

Add: Rental income

₹ 2,00,000

Total annual income

₹ 14,00,000

Deduct: Deduction on interest paid towards home loan under Section 24B

₹ 2,00,000

Deduct: Deduction under Section 80C

₹ 1,50,000

Taxable income

₹ 10,50,000

Note that individuals need to follow the old tax regime to avail of the tax deduction under Sections 24B and 80C. Here, the taxable income is ₹ 10,50,000. So, as per the old tax regime-

Income Tax Slab

Tax Percentage

Tax Amount (in INR)

0-2.5 Lakh

0%

0

2.5-5 Lakh

5%

12,500

5-7.5 Lakh

20%

50,000

7.5-10 Lakh

20%

50,000

10-10.5 Lakh

30%

15,000

Hence, total tax liability = ₹ (12,500+50,000+50,000+15,000) =  ₹ 1,27,500.

Alternatively, if there was no rebate available under Section 24B, the tax liability would have increased further to ₹ 1,87,500 as the taxable income would have been ₹ 12,50,000 instead of ₹ 10,50,000.

Thus, Section 24B of the Income Tax Act allows individuals to lower their tax liability by claiming tax deduction against interest paid towards a loan used for constructing, purchasing or renovating a house.

FQAs about Section 24B of Income Tax Act