Section 24 of Income Tax Act: Know Tax Deduction for Home Owners

Section 24 of Income Tax Act: Check Deduction for Home Owners

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Section 24 of Income Tax Act

Owning a home is often considered as one of the foremost desirable wishes for many people. 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. This is often also referred to as “Deductions from income from house property.” Basically, it allows you to assert tax exemptions on the interest amount of your home loan. 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. The income from house property is taken into account for tax deductions under the subsequent circumstances. If you’re renting a house, then the rent amount is considered income. If you’ve got more than one house, then the net annual value of all the homes is taken into account as income.

However, if a person has just one house and lives therein one, then the income from that property is considered nil.

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 by way of 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);
  • The annual value of the property which is self-occupied;

The gross annual value differs in all the three cases as follows:

Situation

Gross Annual Value (GAV)

Self-Occupied 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 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. The most effective part about this deduction is that it is allowed even when the definite expenditure on the property is higher or lower.

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:

Tax exemption is allowed on the interest amount of property that’s acquired, repaired, constructed, reconstructed, or renewed. 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 deduction under Section 24 of the Income-tax act.

Points to Keep in Mind While Analyzing Income from House Property:

  1. Under section 24 of the Income-tax Act, Tax on house property is calculated on the Net Annual Value of the property. And further, from the Net Annual Value, the deductions are done
  2. 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.
  3. 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, or renewal of Property.
Tax Deduction 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 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 have the benefit of this announcement.

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Also read:

How Stamp Duty and Registration Charges are Calculated on Property?

Home Loan Prepayment

Stamp Duty Calculator for Home Loan

Encumbrance Certificate and Non-Encumbrance Certificate

MahaRERA: Maharashtra Real Estate Regulatory Authority

RERA Act: Benefits, Eligibility and Registration Process of RERA Act

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