The interest paid on the loan can be deducted from the taxpayer's overall taxable income because of Section 24B of the Income Tax Act. These loans are intended to be used to purchase, build, repair, and renovate residential properties. These deductions are calculated using the accrual method. A taxpayer can submit claims for deductions related to two or more housing and home loans. For a person to be eligible for a deduction under this section of the Act, they need to be the owner of the home, and the loan needs to be in their name.
Maximum limit of 24B
The maximum amount of interest that can be deducted from your taxes is Rs. 2,000.
This is true for both residential homes that their owners occupy and rent out. Those individuals who own two homes that they occupy alone are eligible to claim interest deductions.
However, the maximum allowable deduction can be decreased from Rs. 200,000 to Rs. 30,000 in the following circumstances:
If a person borrowed a loan to purchase a new home or started construction on a new house before April 1, 1999, they may be eligible for a tax credit.
On or after April 1, 1999, a taxpayer took out a loan to make improvements or repairs to an existing residence using the money from the loan.
If a loan was taken out on or after April 1, 1999, and the construction of the house was not finished within five years of the end of the year in which the loan was taken out.
Interest in the pre-construction/ acquisition period
It is permissible to pay interest for the pre-construction or acquisition period in five equal installments beginning in the year that the house property is finished. This deduction cannot be used if the loan was taken out to make repairs, renovations, or alterations.
The date of the borrowing marks the beginning of the pre-construction and acquisition period, which continues until the completion of the construction project on the final day of the previous financial year.
When a home loan is taken out in both parties' names, each co-borrower is entitled to a deduction in the amount corresponding to the percentage of the loan the person is responsible for paying. To qualify for this deduction, the co-borrower in concern has to also be a co-owner of the property in consideration. If the taxpayer is a co-owner of the property but repays the entire loan on his own, he is eligible to claim a deduction for the entire amount of interest that he has paid.
When it comes to deductions for properties that are self-occupied, the maximum that applies to each co-borrower is different. In other words, each co-borrower can claim a deduction of up to Rs. 30,000 or Rs. 2 lakh, whichever is more. There are no restrictions placed on properties that are rented out.