Section 24 of the Income Tax Act 1961 offers substantial tax benefits for homeowners by allowing deductions on income generated from house property. Given that purchasing a home is a significant milestone for many middle-class Indians, home loan EMIs often become a major financial commitment. Recognising this, the government has introduced provisions under Section 24 to ease this burden through tax exemptions, specifically on interest repayments. These benefits not only make homeownership more affordable but also support individuals with rental properties by enabling them to reduce taxable income.
What is Section 24 of Income Tax Act
Section 24 of Income Tax Act allows tax deductions for the interest paid on home loans and is therefore called ‘Deduction on Income from House Property’.
Under this section, homeowners can claim up to Rs 2 lakh in tax deductions for the interest paid on home loans if the property is self-occupied. If the property is rented out, one can claim deductions for the entire interest paid on the home loan.
Deductions Under House Property
- Municipal tax – Municipal taxes are the annual amount paid to the municipal corporation of that area. Municipal taxes are to be deducted from the Gross Annual value to derive the Net annual value of the house property. Deduction of municipal tax is allowed only if it has been borne by the owner and paid during that financial year. The amount derived after deducting municipal taxes from GAV is termed as Net Annual Value (NAV).
- Standard Deduction – Standard Deduction is allowed 30% of the NAV calculated above. This 30% deduction is allowed even when your actual expenditure on the property is higher or lower. Therefore, this deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply etc. For a self-occupied house property, since the Annual Value is Nil, the standard deduction is also zero on such a property.
- Deduction of Interest on Home Loan for the property –House Property owners can claim a deduction of up to Rs.2 lakh on their home loan interest if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below:
- The home loan must be for the purchase and construction of a property;
- The loan must be taken on or after 1 April 1999;
- The purchase or construction must be completed within 5 years from the end of the financial year in which the loan was taken
Eligibility to Claim Deduction under Section 24(b)
To enjoy the benefits of tax deductions under Section 24, it is essential to meet the eligibility criteria. Let’s see what the eligibility criteria are for claiming deductions under Section 24(b).
- To prove that the interest is payable on the home loan, it is mandatory to have an interest certificate.
- In order to construct or purchase a residential property, your home loan must be approved on or after April 1, 1999.
- The house must be purchased or built within five years of the financial year in which the loan was disbursed.
The following conditions must be met in order to claim an interest deduction of up to Rs 30,000.
- If the amount is borrowed on or after April 1, 1999, for the property, either for construction or acquisition, that has not been completed within 5 years from the end of the financial year in which the capital was borrowed, the deduction is up to Rs 30,000 only.
Taxpayers who borrowed home loans on or after April 1, 1999, for the purpose of reconstructing, renewing, or repairing their houses can claim this benefit. - If a loan is taken before 1 April 1999 for the purpose of purchasing or building a house, you are eligible for a deduction under this clause.
Understanding “Income from House Property” under the Income Tax Act
Income from house property under the Income Tax Act is calculated on the basis of the following:
- Annual value of a self-occupied property
- Housing income earned as rent
- The annual value of a property which is treated as ‘deemed to be let out’ for taxation purposes
FAQs
What is Section 24 in ITR 2 schedule?
An individual owning a property let out on rent or self occupied can claim tax deductions under Section 24 of the Income Tax Act.
Is pre-construction interest deductible under Section 24?
Yes, you can claim a tax deduction on the pre-construction interest cost only if a property is purchased on loan.