What is Section 24 of the Income Tax Act
Section 24 of the Income Tax Act, 2025, provides tax benefits on the interest paid on home loans, helping taxpayers reduce their taxable income. Under the old tax regime, individuals could claim deductions of up to ₹2 lakh per year on interest payments for self-occupied properties. Under the new tax regime as revised in the Income Tax Act, 2025, these deductions are not available however, the new regime now offers significantly higher tax-free income thresholds and revised slab rates, making it the default regime for most taxpayers.
Example Calculation: Old vs. New Tax Regime
Scenario:
Rajesh takes a home loan of ₹40 lakh at an interest rate of 8% per annum for 20 years. His annual interest payment is approximately ₹3.2 lakh.
Case 1: Under the Old Tax Regime
- Rajesh can claim a deduction of up to ₹2 lakh per year on home loan interest under Section 24.
- Taxable income: ₹12 lakh → reduced to ₹10 lakh after deduction.
- Lower tax liability due to reduced taxable income.
- Impact: Saves tax through Section 24 deduction on home loan interest.
Case 2: Under the New Tax Regime
- Section 24 deduction is not available under the new regime. Taxable income remains ₹12 lakh.
- However: Under the Income Tax Act, 2025, income up to ₹12 lakh is effectively tax-free (after the ₹75,000 standard deduction and rebate under Section 87A). Rajesh’s net tax liability may be nil.
- Impact: Loses the Section 24 deduction but benefits from a higher rebate threshold income up to ₹12 lakh attracts zero tax, making the new regime more favorable for many salaried taxpayers.
What are the Key Changes in the New Tax Regime?
With the introduction of the new tax regime under the Income Tax Act, 2025, there have been significant alterations to the provisions of Section 24. Key changes include:
Standard Deduction vs. Itemized Deductions
Under the old tax regime, taxpayers could claim deductions under various sections, including Section 24, through itemized deductions. The new tax regime replaces these with a standard deduction of ₹75,000 for salaried individuals, thereby removing the applicability of Section 24.
Optional Regime
The new tax regime is now the default under the Income Tax Act, 2025. Taxpayers must actively opt for the old regime to claim Section 24 benefits. The choice directly impacts the eligibility and quantum of deductions available.
Lower Tax Rates
The new tax regime offers lower slab rates and a zero-tax threshold up to ₹12 lakh (₹12.75 lakh for salaried individuals including standard deduction). Deductions under Section 24 are not available, but the overall tax outgo may still be lower for many taxpayers.
Applicability of Section 24 in the New Tax Regime
Section 24 deductions apply only under the old tax regime. Taxpayers who opt for the new regime cannot claim these benefits.
Deduction on Self-Occupied Property
The ₹2 lakh deduction on home loan interest under Section 24 is available only under the old tax regime. Taxpayers who opt for the new tax regime cannot claim this deduction for self-occupied properties.
Deduction on Let-Out or Deemed Let-Out Property
For properties that are let-out or deemed to be let-out, taxpayers under the old regime can claim a deduction for the entire interest paid on the home loan, with no upper limit under Section 24.
Additional Deduction for Affordable Housing
The additional deduction of up to ₹1.5 lakh on home loan interest for affordable housing (previously available under Section 80EEA) has not been extended under the Income Tax Act, 2025. Taxpayers should verify current eligibility before factoring this into their planning.
Impact on Taxpayers
The changes in Section 24 and the introduction of the new tax regime have implications for taxpayers, especially those with housing loans. Here is how taxpayers are affected by this change:
Choice of Tax Regime
Taxpayers need to evaluate whether it is beneficial to opt for the old tax regime (with higher deductions under Section 24) or the new tax regime (with lower rates and a zero-tax threshold up to ₹12 lakh). For those with large home loans, the old regime may still offer better savings.
Financial Planning
Homebuyers must factor in the tax implications of their housing loans while planning finances. Understanding which regime offers greater benefit based on income level and loan size is essential for informed decision-making.
Compliance and Documentation
Taxpayers must ensure compliance with the provisions of Section 24 and maintain accurate documentation of home loan transactions to claim deductions effectively under whichever regime they opt for.
Wrapping it Up
Section 24 deductions remain available only under the old tax regime. With the Income Tax Act, 2025 making the new tax regime the default and raising the effective zero-tax threshold to ₹12 lakh, most taxpayers will need to reassess whether retaining the old regime for Section 24 benefits is still worthwhile. A comparison based on your income level, loan size, and other deductions is the best way to decide.
FAQs
1
How important is compliance with Section 24 provisions for taxpayers?
Complying with Section 24 is crucial as it ensures proper tax deductions for home loan interest.
2
What documentation is required to claim deductions under Section 24?
To claim deductions, documents like loan sanction letters, interest certificates, and property ownership proof are required.
3
Can taxpayers claim deductions under Section 24 for properties under construction?
Deductions for under-construction properties are limited until completion within 5 years.
4
Are there any limitations or restrictions on claiming deductions under Section 24?
Limits apply depending on property occupancy and the regime chosen (the new regime excludes self-occupied deductions).
