Section 24(b): Claim Up to Rs 2 Lakh Home Loan Interest — But Only If You Stay in the Old Tax Regime

Buying a house on a loan is, for most salaried Indians, the single largest financial commitment they will ever make. The interest component alone on a Rs 50 lakh loan at 8.5% runs to roughly Rs 4,25,000 in the first full year. Section 24(b) of the Income-tax Act, 1961 softens that blow by letting you deduct up to Rs 2,00,000 of that interest from your taxable income every year for a self-occupied property. The catch, confirmed on the Income Tax Department's AY 2026-27 help page for salaried individuals, is that this deduction survives only in the old tax regime. Choose the new regime under Section 115BAC and the self-occupied interest deduction disappears entirely.

This matters more than ever for the financial year 2025-26 (assessment year 2026-27), because the new regime is now the default. If you want the Rs 2,00,000 interest break on the home you live in, you must consciously opt out of the default and elect the old regime when you file. The arithmetic below shows exactly what that election is worth, and a single wrong assumption can cost a 30% slab taxpayer more than Rs 62,000 a year.

What the Section Says

Section 24(b) allows a deduction for interest payable on capital borrowed for the purchase, construction, repair, renewal or reconstruction of house property. The amount you can claim depends on how the property is used and when the loan was taken. The table below sets out the four situations that the statute and the Income Tax Department recognise for AY 2026-27.

Three statutory conditions decide whether you get the full Rs 2,00,000 or are restricted to Rs 30,000 for a self-occupied house. First, the loan must have been taken on or after 1 April 1999. Second, it must be for purchase or construction, not merely repair. Third, the construction or acquisition must be completed within 5 years from the end of the financial year in which the loan was taken. Miss any one of these and the deduction drops to Rs 30,000, a difference worth up to Rs 1,70,000 of foregone deduction.

For a let-out or deemed let-out property, Section 24(b) imposes no ceiling at all: the entire interest payable is deductible against the rental income. However, the resulting loss under the head income from house property that you can set off against other heads such as salary is restricted to Rs 2,00,000 per year under Section 71, with the balance carried forward for up to 8 assessment years. You can model both self-occupied and let-out outcomes on the Oquilia income from house property calculator.

A second, frequently missed benefit is pre-construction interest. Interest paid during the period before the year of completion is not lost. It is aggregated and claimed in 5 equal annual instalments starting from the financial year in which construction is completed, subject to the same overall Rs 2,00,000 cap for a self-occupied house. This is a tax deduction many first-time buyers forget to spread out correctly. None of these benefits, it bears repeating, apply to a self-occupied property if you are taxed under the new regime for FY 2025-26.

Worked Example

Consider Meera, a salaried professional in Pune with a gross salary of Rs 16,00,000 for FY 2025-26. She bought a flat in 2021 with a home loan and lives in it. Her interest payable for the year is Rs 2,40,000, but Section 24(b) caps the self-occupied deduction at Rs 2,00,000. To keep the comparison clean we ignore her other deductions and look only at the effect of the Section 24(b) claim under the old regime.

The Section 24(b) claim cuts Meera's tax bill by Rs 62,400 for the year. That is simply the Rs 2,00,000 deduction multiplied by her 30% marginal slab rate and the 4% cess: Rs 2,00,000 x 30% x 1.04 = Rs 62,400. The old-regime slabs used here are 5% on income from Rs 2,50,000 to Rs 5,00,000, 20% from Rs 5,00,000 to Rs 10,00,000, and 30% above Rs 10,00,000.

Now the trade-off. Under the new regime for FY 2025-26, Meera cannot claim the Rs 2,00,000 at all, but she faces lower slab rates and a higher standard deduction of Rs 75,000. Whether the old regime plus Section 24(b) beats the new regime depends on her full deduction profile, including any 80C and 80D claims. The only reliable way to settle it is to run both scenarios side by side on the old vs new regime calculator and the income tax calculator before locking in your choice for AY 2026-27.

A pre-construction example sharpens the point. Suppose Meera had paid Rs 3,00,000 of interest during the construction period across FY 2019-20 and FY 2020-21, before the flat was completed in FY 2021-22. That Rs 3,00,000 is claimed in 5 equal instalments of Rs 60,000 each from AY 2022-23 onward. In any year, the pre-construction instalment plus the current-year interest together cannot exceed Rs 2,00,000 for a self-occupied house, so careful sequencing of the loan tranches matters.

Common Mistakes

Section 24(b) generates a steady stream of prima facie adjustments under Section 143(1)(a) precisely because taxpayers misread its conditions. The errors below recur every filing season for AY 2026-27.

Claiming Rs 2,00,000 under the new regime. This is the single most common mistake. The Income Tax Department's AY 2026-27 help page lists Section 24(b) for self-occupied property under the old regime only. If you file under the default new regime and still enter Rs 2,00,000, the Central Processing Centre will disallow it and raise a demand. Our note on responding to an intimation u/s 143(1)(a) explains how these prima facie adjustments are processed.

Confusing principal with interest. Repayment of the loan principal is deductible under Section 80C, capped at Rs 1,50,000, while only the interest qualifies under Section 24(b). Mixing the two inflates one claim and understates the other. Your bank's annual interest certificate splits the EMI into principal and interest precisely so you can allocate them to the correct sections.

Ignoring the 5-year completion rule. If construction of a self-occupied house is not completed within 5 years from the end of the financial year in which the loan was taken, the cap collapses from Rs 2,00,000 to Rs 30,000. Buyers of delayed under-construction projects routinely overstate their claim and face disallowance.

Forgetting pre-construction interest. Interest paid before completion is not deductible in the year of payment but is allowed in 5 equal instalments from the year of completion. Taxpayers who fail to track this lose one-fifth of a legitimate deduction every year for five years.

Double-claiming on a let-out property loss. While interest on a let-out property is fully deductible, the house-property loss set off against salary is capped at Rs 2,00,000 per year under Section 71, with the rest carried forward up to 8 assessment years. Entering the full loss against salary in a single year invites an adjustment.

FAQ

Can I claim Section 24(b) under the new tax regime for FY 2025-26?

No. For a self-occupied house, the Section 24(b) interest deduction of up to Rs 2,00,000 is available only under the old regime. The Income Tax Department's AY 2026-27 salaried-individuals help page confirms it is not allowed under the new regime governed by Section 115BAC. Interest on a let-out property continues to be deductible against rental income even in the new regime, but the resulting loss cannot be set off against salary in the new regime.

What is the maximum home loan interest I can deduct?

For a self-occupied property with a loan taken on or after 1 April 1999 for purchase or construction completed within 5 years, the ceiling is Rs 2,00,000 per year. If the loan is for repair or renewal, or completion exceeds 5 years, the cap falls to Rs 30,000. For a let-out property there is no cap on the interest itself.

How do I claim interest paid during construction?

Pre-construction interest, meaning interest paid before the financial year in which construction is completed, is aggregated and claimed in 5 equal annual instalments beginning from the year of completion. For a self-occupied house this is still subject to the overall Rs 2,00,000 annual cap when combined with current-year interest.

Can both co-owners claim Section 24(b) on the same loan?

Yes, if both are co-owners of the property and co-borrowers on the loan. Each co-owner can claim up to Rs 2,00,000 of interest for a self-occupied house in proportion to their share, provided each is taxed under the old regime. This can lift the household's combined interest deduction to Rs 4,00,000 a year.

Is the Section 24(b) limit different from the Section 80EE benefit?

Yes. Section 24(b) covers interest up to Rs 2,00,000 for self-occupied property generally, while Section 80EE and 80EEA offer additional interest deductions for specified first-time buyers within prescribed loan and value limits. You can explore the additional first-time-buyer relief on the Section 80EE calculator.

Does prepaying my loan affect the deduction?

The deduction is based on interest payable for the year, so prepaying the principal reduces future interest and therefore your future Section 24(b) claim. The principal you repay, including any lump-sum prepayment, may qualify under Section 80C within its Rs 1,50,000 ceiling.

Which regime should I pick if I have a home loan?

There is no universal answer. A 30% slab taxpayer with a full Rs 2,00,000 interest claim saves Rs 62,400 in the old regime, but the new regime offers lower rates and a Rs 75,000 standard deduction. Run your actual figures through the old vs new regime calculator before filing for AY 2026-27.