As property prices continue to rise, home loans are great financial tools to fulfill the dream of owning your own house. To reduce the burden, the Government of India offers tax benefits to individuals against the principal and interest amount paid against these loans. 

 

Section 24 of the Income Tax Act of 1961 deals with such deductions and tax benefits on home loans. This section is also referred to as ‘Deductions from income from house property.’ 

Applicability of Section 24

The provisions of Section 24 of the Income Tax Act apply in the following circumstances:

  • You can compute the income from house property under this section when you have deducted an amount equal to 30% of the annual value

  • This is applicable when the property is acquired, constructed, repaired, renewed, or reconstructed with a home loan

  • The deduction amount must not exceed ₹2 Lakhs 

Deductions Under Section 24

You can claim the following types of deductions under Section 24 of the Income Tax Act:

1. Standard Deduction

Taxpayers who are eligible for this deduction can claim 30% of the NAV. This deduction is applicable regardless of the expenses incurred on maintenance and repair of the house when buying the house. 

 

The standard deduction under Section 24 for a self-occupied house is zero as the NAV of a self-occupied property is zero.

2. Municipal Deductions

Taxpayers have to pay municipal tax every year to the respective municipality of the area. This tax is deducted from the Gross Annual Value (GAV) to derive from the house’s NAV. 

 

Homeowners who have paid municipal tax in a fiscal year can claim municipal deductions for that particular year.

3. Deduction on Interest on Home Loan U/S 24

Individuals who have taken a housing loan can enjoy a tax deduction of up to ₹2 Lakhs. An individual can also claim up to ₹2 Lakhs while computing his or her total tax under the head of house property. 

 

This loan has to be taken to build, acquire, reconstruct, or repair the housing property. This deduction is not applicable for any commission or brokerage that an individual pays to an agent or middleman.

4. Deduction for Pre-construction 

A taxpayer has to pay an interest cost even during the construction period, which is called a pre-construction cost. Section 24 has provisions for deduction on pre/post-construction interests.

 

The conditions mentioned below are applicable:

  • The deductions against pre-construction interest are limited just like post-construction interest to ₹2 Lakhs

  • In case the loan is taken for reconstruction or repair, this tax deduction is not applicable

  • This deduction is available if the construction is completed within five years from the end of the financial year in which the loan was taken

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Subsections Under Section 24

Here are the details of the subsections included under Section 24 of the Income Tax Act: 

1. Section 24A: Standard Deduction

Section 24A of the Income Tax Act has provisions for a flat 30% deduction on the NAV of a rented housing property. However, it applies if you buy a property with your own funds. You cannot claim this deduction if you self-occupy the property. 

 

Here is an example to help you understand how these deductions work:

Parameters

Amount

Gross Annual Value (GAV)

₹10.20 Lakhs

Deducting the municipal tax from the GAV to calculate the NAV

₹20,000

Net Annual Value

₹10 Lakhs

Available Exemptions

 

30% Standard deduction on NAV u/s 24(A)

₹3 Lakhs

Deduction of up to ₹2 Lakhs on interest of home loan paid

NIL

Total deduction

₹3 Lakhs

Disclaimer: The above figures are indicative only and for illustrative purposes. 

2. Section 24B

For a self-occupied housing property, the net annual value is ‘NIL’. This would result in the loss of the property value. In such a situation, you can claim deductions of up to ₹2 Lakhs on the housing loan interest u/s 24B of the Income Tax Act. 

 

If this housing property is generating income, then the total housing loan interest is allowed as a deduction. Here is how deductions apply on the self-occupied property under this section:

Parameters

Amount

Gross Annual Value (GAV)

NIL

Deducting the municipal tax from the GAV to calculate the NAV

NIL

Net Annual Value

NIL

Exemptions that are available

 

30% Standard deduction on NAV u/s 24(A)

NIL

Deduction of up to ₹2 Lakhs on interest of home loan paid

₹2 Lakhs

Loss from housing property

₹2 Lakhs

Note that the limit for this deduction is ₹30,000 in the case:

  • The housing loan was taken before April 1, 1999

  • If you use the borrowed capital for reconstruction, repair, or renovation 

  • If you have availed of a housing loan on April 1, 1999, or later, but the housing construction was not complete in 5 years 

 

Also, note that the deduction is not allowed until and unless you provide the certificate of payment of housing loan interest. 

Section 24 on Rented Property Purchased Using Home Loan

Here is how deductions under Section 24B apply to rented house property: 

Type of Property 

Property Tax Deduction 

Gross Annual Value

Standard deduction

Net Annual Value 

Home loan interest exemption

Vacant/Self-occupied

NIL

NIL

NIL

NIL

₹2 Lakhs

Rented

The tax amount paid during the particular year

The expected rent or the earned rent, whichever is more

30% of the NAV

The amount after reducing the property tax

The entire amount that is paid during the particular year

Conditions for Claiming Interest on Home Loan

In order to claim deductions under Section 24 of up to ₹2 Lakhs, the taxpayers have to fulfil the following criteria:

  • The taxpayer was sanctioned a housing loan on or after 1st April 1999 to purchase or contract a property

  • The taxpayer has to have the certificate of payment of housing loan interest

  • The housing property has to be constructed or acquired within five years from the completion of a fiscal year in which the taxpayer borrowed the loan

Exceptions Under Section 24

Some of the exceptions under this section are:

  • The taxpayer has to submit the certificate for interest against the housing loan

  • No deductions for brokerage/commission, but municipal tax can be factored into housing property NAV calculation

  • In case the owner does not occupy the house, there is no upper limit to the tax that can be deducted

  • If the owner resides in a rented house due to business/employment, they can claim up to ₹2 Lakhs interest on home loan

FAQs on Tax Deductions on Home Loans

Where is Section 24 in the ITR form?

It appears under the head ‘Income from House Property.’

Are Sections 24 and 80EE different?

Yes, they are both different sections. Section 24 of the Income Tax Act offers a tax deduction on the payable interest amount. 

 

On the other hand, Section 80EE offers tax benefits on home loan interest for first-time home buyers. The limit of Section 24 is ₹2 Lakhs, whereas, in Section 80EE, it is ₹50,000.

Who can claim Section 24?

This provision applies 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.

Can I get tax benefits for an under-construction property?

Yes, you can claim tax benefits on the interest paid on a home loan before possession under Section 24 of the Income Tax Act, 1961.

Can I claim both Section 80EEA and Section 24?

Yes, you can claim benefits under both sections. However, you can claim benefits under both these sections only if you satisfy all conditions required for both of them.

What is the difference between sections 80C and 24?

As per Section 24, you can claim deductions of up to ₹2 Lakhs on interest payment. On the other hand, you can get deductions of up to ₹1.5 Lakhs on principal repayment according to Section 80C.

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