Home » Articles » Section 24 of Income Tax Act: Check Deduction for Home Owners
Many people strongly desire to own a home. But, given the skyrocketing prices of homes within the metros and even in Tier-II cities, it has become very difficult for people to afford it. Therefore, the Government of India has come up with several key benefits under section 24 of the Income-tax Act, 1961 to grant relief through different tax breaks for purchasing a house as a way of rewarding anyone who invests in the land.
What is Section 24 of the Income Tax Act?
Section 24 of the Income Tax Act, 1961 takes into consideration the amount of interest a person pays money for home loans. Thus, claiming deductions against your income from house property is allowed under the name “Deductions from income from house property”. Basically, it allows you to assert tax exemptions on the interest amount of your home loan. Additionally, the maximum income tax deduction limit under Section 24 is Rs. 1,50,000. And one doesn’t need to particularly live in that house to be able to apply for tax deductions. Further, you can claim tax deductions on your income from house property if any of the subsequent situations apply. If you’re renting a house, then the rent amount is considered income. When you own multiple houses, you must combine the net annual income from all of them to determine your total taxable income.
However, owning and occupying only one property means you won’t have any taxable income from it.
What is Income from House Property Under Section 24 of the Income Tax Act?
There are three scenarios in which income from house property can occur: –
- Housing income through rent;
- The annual value of the property which is treated as “deemed to be let out” for tax purposes (This occurs once we own more than one property);
- Lastly, annual value of self-occupied property;
Consequently, the gross annual value differs in all three cases as follows:
|
Situation |
Gross Annual Value (GAV) |
| Self-Occupied or Occupied by Parents | Nil |
| Property let out for rent | Rent received (Annual Value is fewer municipal taxes paid i.e. Annual Value = Gross Annual Value minus municipal taxes paid to local authorities) |
| Deemed to be let out | Reasonable rent for similar property/location considered |
Deductions Under House Property Under Section 24 of the Income-tax Act:
There are certain deductions you’ll be able to claim, find, and reduce your tax outgo if you have income from house property.
1. Standard Deduction:
A standard deduction rate of 30% is applicable on the Net Annual Value of the property. One of the biggest advantages of this deduction is that you can claim it regardless of whether your actual property expenses differ from the expected amount.
The normal costs which may be incurred could also be insurance, repairs, electricity, water system, etc. A very important point to recollect here is that as the Annual Value of a self-occupied home is nil, the standard deduction applicable is also nil.
2. Interest on loan:
You can also take advantage of the tax exemption on interest paid for acquiring, repairing, constructing, reconstructing, or renewing your property. So, if a loan is availed to hold out any such mentioned activity, then the interest on such a loan is exempted and may be claimed as a deduction under Section 24 of the Income-tax Act.
Points to Keep in Mind While Analyzing Income from House Property:
Under Section 24 of the Income-tax Act, your house property tax will be based on its Net Annual Value. And further, from the Net Annual Value, the deductions are done-
- If the house considered for computing income from house property is vacant for a particular period of the year then is let out and also the owner or deemed owner is receiving rent then the computation should be done only on the rent received and not computed for the whole year. For example: If the home is released for 10 months for rent of Rs.10,000 then the gross value of the property will be calculated as 10*10,000=1,00,000. Tax will be thus computed on this amount after doing a regular deduction of 30% and deducting any interest on the loan.
- If the taxpayer’s home is vacant for the entire year and therefore the taxpayer is residing at different locations because of his employment but continues to be paying Municipal taxes, then this will be offset against income from other sources like salary, etc. within the same year. If the taxpayer is unable to offset it then it may be carried forward this up to eight years.
Tabular representation of major points of section 24 of the Income Tax Act:
| Particulars | Section 24 of the Income Tax Act |
| Tax Deduction Allowed | Two main deductions allowed namely:
· Standard deduction @ 30% · Interest on borrowed capital |
| Tax Deduction Based on | Increasing Basis |
| Tax Deductions Limit | · For Self-Occupied Property: Rs.2 lacs
· For Non-Self Occupied Property: No Limit |
| Borrowed Capital can be used for | Purchase of Property, Construction, Reconstruction, Repair, as well as Renewal of Property. |
| Tax Deductions can be claimed up till | · In case of Construction and Purchase of the property to be completed in 5 years.
· While for renovation and reconstruction, it can be availed only after completing the renovation and reconstruction. |
| Restriction on Sale of Property | Nil |
Relief for Home Owners from the Government of India:
We all know that the Government of India has been giving a lift to the affordable housing segment and aims to give Housing for All by 2022 under Pradhan Mantri Awas Yojana (PMAY).
To further provide a fillip to its existing scheme, in the recent budget announced by the finance minister, the govt. of India provided additional relief to the tune of INR 1.5 lakhs for the purchase of a house up to INR 45 lakhs.
So those people going to buy a house under the affordable housing scheme can hugely benefit from this announcement.
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