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ON THIS PAGE: What is Section 24 of the Income Tax Act? | What are the Deductions under Section 24 of Income Tax Act? | What are the Exceptional Situations Under Section 24? | Conditions u/s 24 to Claim Income Tax Deduction on the Interest of Home Loan | How to Calculate Income from House Property? | FAQs
Buying one’s own house and living in it is a dream of many. However, the high prices of properties make it hard to achieve this dream. That is when the buyer looks for options like a home loan. Home loans are now easily available in all major banks and even the government offers several advantages. One of the benefits given on home loans is tax deduction from the income coming from the house property and tax deduction on interest paid on the house loan. Section 24 of Income Tax Act, 1961 talks about these income tax deductions. Let’s explore the details about Section 24 of the Income Tax Act.
Section 24 provides income tax deductions on the interest that one pays for a property or home loan and also the income from the house property. The section is also known as, ‘deductions from income from house property’. A home loan consists of two parts, principal and interest. Section 80C covers the principal part of the home loan and, on the other hand, Section 24 covers the interest amount.
The maximum amount that you can claim as a deduction under Section 24 of Income Tax Act is ₹2,00,000. You do not have to be living in the house for which the tax benefits are claimed. The income from the residential property is taken into consideration in the following circumstances:
If you are renting a house, the rent of that house is considered as part of your income
If you own more than one house, the net annual value of those houses except the one where you live is counted as your income
However, if you live in a house that’s the only one you own, the income of that house is considered nil
There are two important deductions that are applicable under Section 24, standard deduction and deduction on home loan interest. Here are the details about both of them.
The standard deduction is allowed at 30% of the net annual value that is calculated as above. This type of deduction is applicable even when the actual expense on the property is lower or higher. In this way, this standard deduction is applicable irrespective of the expenses that have been incurred on the property, like electricity, water supply, insurance, repair, etc. On the other hand, in a house that is self-occupied by the owner, the annual value is nil. Therefore, the standard deduction is also zero.
House owners can claim an income tax deduction of up to ₹2 lakh on the interest of the home loan. This can be done if the owner or his/her family is living in the said house. In addition to this, if the said house is vacant, the owner can still claim the same deduction amount. However, if the house is rented out, the entire interest amount of the home loan becomes eligible for the income tax deduction under Section 24. It does not matter if you have paid the amount of interest to the financer as you will get the income tax exemption on the entire year’s interest amount.
There are certain conditions that have to be satisfied in order to claim a tax deduction applicable under Section 24 of the Income Tax Act, 1961. If an individual fails to satisfy the conditions mentioned below for a tax rebate of ₹2 lakh, then his/her income tax rebate on the home loan interest cannot be more than ₹30,000. The conditions are:
You should have taken the home loan on or after April 1, 1999
You should have taken the home loan for construction or purchase of property
The construction or purchase for which the loan is taken should have been complete within at least 5 years from the end of the financial year when the home loan was taken
Mentioned below are some exceptional situations when it comes to Section 24 of the Income Tax Act, 1961:
The income tax exemption under Section 24 of the Income Tax Act does not have an upper limit if the house is not occupied by the owner and the entire interest amount that he/she is paying can be claimed for tax benefits
Due to the business or employment of the owner in a different town, if he/she is not occupying the house and living in some other rented property, he/she can claim a tax rebate on the payment of interest up to ₹2 lakh
The brokerage or commission that one pays to arrange a tenant or loan cannot be claimed under Section 24 of the Income Tax Act
A certificate of interest in the home loan that the owner has taken is mandatory
The deduction is applicable only on the property where the construction is finished within 5 years. If it is not completed in this given time frame, the tax benefit of only up to ₹30,000 can be claimed
Below conditions need to be met for claiming a successful income tax deduction under Section 24 of the Income Tax Act:
The loan has to be taken on or after April 1, 1999, for construction or purchase of the house
You should also have the interest certificate for the payable interest on the home loan
The house has to be constructed or acquired within 5 years (3 years till the financial year 2015-16) from the ending date of the financial year when the home loan was taken
The income tax deduction under Section 24 of Income Tax Act is limited to ₹30,000 if any of the following conditions are met
You have taken the home loan on or after April 1, 1999, for renovation, reconstruction or repairing of the property
You have taken the home loan before April 1, 1999, for construction, purchase or reconstruction of the property
It is certainly not an easy task to calculate the income from house property. Given below are some pointers that will help in the same:
Only the Net Annual Value (NAV) of the house is considered for the tax benefits under Section 24 of the Income Tax Act. The same is calculated by deducting any municipal taxes paid for the property from its gross annual value. For example, if you are the owner of a house and you earn an annual interest rate of ₹1,50,000 and the municipal tax paid is ₹50,000, then the Net Annual Value of the house becomes ₹1,00,000. You will have to pay the taxes only on the NAV.
If your house stays vacant for a specific duration in a financial year because of the unavailability of a tenant, then the rent is calculated only for the period where the house had tenants. For example, if the home was vacant for 4 months and it was rented after that for ₹15,000 for the remaining 8 months, then the gross value calculated for the house will be ₹15,000*8 = ₹1,20,000. The liable income tax on this income will be calculated after deducting municipal tax and the standard deduction of 30%.
If there is no income coming from the house because it is vacant, but you, being the owner, are paying the municipal taxes, then you can offset the loss of income from various other means like rent from other property or salary of the same financial year. Even if you are unable to offset the losses, you can carry forward this loss for up to 8 years.
Section 24 provides a tax benefit on the interest amount that one pays on home loans. It also takes into consideration the income from house property and allows a tax deduction.
Yes, they are both different sections as Section 24 offers a tax deduction on the payable interest amount and Section 80EE offers tax benefits on home loan interest for first time home buyers. The limit of Section 24 is ₹2 lakh, whereas, in Section 80EE it is ₹50,000.
Any homeowner can claim an income tax deduction up to ₹2 lakh on the home loan interest if the owner or his/her family is residing in the said house. If the house is on rent, the entire interest amount is waived off as a deduction.
Yes, if you are able to satisfy all conditions required for both Section 24 and 80EE of the Income Tax Act, you can claim benefits under both sections.
Yes, you can claim tax benefits on the interest paid on a home loan before possession under Section 24 of Income Tax Act, 1961.