Section 24 - Income Tax Deductions from Property House

A home of ownership is one of the biggest dreams we all share. We can decorate it with love and enjoy every moment of possessing it. The benefits are life-long like financial security for life and experiencing the rise in the value over years. If the house has been purchased with a home loan, then there are many financial advantages. The government of India recognizes the importance of owning a home and hence offers several tax deductions to avail. These tax benefits work as a motivation and a way of rewarding anyone who is purchasing a house. Some are towards repayment of the principal amount, whereas some are towards repayment of the interest component. Here, we shall look at the tax deductions under Section 24 of the income Tax Act.

Section 24 of income tax is titled “Deductions from income from house property”. It allows home loan borrowers to enjoy tax deductions on the interest paid towards that home loan. It is in your benefit to make the most of these sections in order to facilitate savings while you also enjoy the peace and security of being a homeowner.

Let us understand what Section 24 of the Income Tax Act is

Home purchase in India is a great investment that also facilitates tax savings. These tax benefits are offered as a reward. Section 24 income tax act refers to the income that is accrued from your property.

Section 24 specifically gives you exemptions on the interest component of the home loan you are repaying through EMIs. This section is related to the deductions from income from home or residential property only. Section 24 enlightens the kinds of deductions that are permitted from the income earned by an individual through his or her residential property. The residential property should be rented by the homeowner and the rent earned should be considered as income. However, in a scenario wherein the person owns more than one property, apart from the one in which he is residing, the remaining properties will be considered as income from residential properties. But if a person has just one house and lives there, then the income from that property is considered nil and if a person is renting their home, then the rental income is considered income.

Must Read : Know How to Calculate Income from House Property

Income from House Property

Understanding the following components is crucial for accurate tax assessment under the 'Income from House Property' category of the Income Tax Act, 1961:

Rental Income on a Let Out Property: Any income generated from letting out a property is taxable under the heading 'Income from House Property.'

Annual Value of Deemed Let Out Property: If you own more than two house properties, the law deems the additional properties as let out for income tax purposes. For self-occupied properties, the annual value is considered nil.

Zero or Negative Annual Value for Self-Occupied Property: If you occupy the property yourself, the annual value is zero. In certain cases, it can even be negative if you're paying home loan interest.

Calculation of Gross Annual Value: For a let-out property, the rent received constitutes the Gross Annual Value. For a deemed let-out property, the Gross Annual Value is calculated based on a reasonable rent for a similar property.

Deductions Under House Property

Deductions Under House Property refers to the tax benefits that individuals can claim on certain expenses related to owning a house or property. Here are common deductions under the head of "House Property" in the Income Tax Act:

Municipal Tax Deductio

Municipal taxes, paid annually to the local municipal corporation, can be deducted from the gross annual value. This deduction is applicable if the owner bears and pays the municipal tax during the financial year.

Standard Deduction

Standard deduction equals 30% of the net annual value. It applies irrespective of actual expenditures on insurance, repairs, or utilities. For a self-occupied property with a nil annual value, the standard deduction is zero.

Interest on Home Loan Deduction

Homeowners can claim up to an INR 2 lakh deduction on home loan interest if the property is self-occupied or vacant. If rented, the entire interest is deductible.

A limited INR 30,000 deduction applies if specific conditions, including completion within 5 years, are not met for the INR 2 lakh rebate.

What are the Types of Deduction under Section 24 of the Income Tax Act?

Let us understand the deductions under section 24 of income tax act Assessment Year 2020-21.

1. Standard deduction:

As per the standard deduction, the taxpayer is allowed a deduction that amounts to 30% of the net property value. This deduction is applicable even if the tax payer’s actual expenditure on the property is higher or lower. The deduction does not depend on the expenses incurred on repairs, insurance, electricity, etc. The standard deduction for self-occupied properties is not applicable as there is no annual income.

2. Deductions on the interest component of home loans:

If you have taken a home loan for your home purchase, you can enjoy deductions on the interest component of the home loan.

As a taxpayer, you can claim a maximum deduction of Rs. 200,000 annually on the interest component of your home loan under Section 24 of the income tax act. This is applicable only if you are residing in the residential property or your property is rented and you are living in a rented home in a different city. This deduction is also valid if your property is unoccupied. There are certain terms to be met, else this deduction on interest is reduced to just Rs.30,000. The terms are the home loan should be taken for purchasing or constructing a property and the purchase or construction of the property is completed within 5 years from the end of the financial year in which the home loan was taken.

Exceptions under Section 24

Under Section 24 of the Income Tax Act, there are specific exceptions and conditions that impact the eligibility for deductions on interest payments for house property. Key exceptions include:

Self-Occupied Property: For a self-occupied property, the maximum deduction is limited to INR 2,00,000. No upper limit applies for a property that is let out.

Property Construction Completion: To claim the deduction, the construction or acquisition of the property must be completed within a specified period from the end of the financial year in which the loan was taken.

Non-Occupancy Exemption: If the house is not occupied by you, you can claim a full exemption on the entire interest amount without any upper limit

Employment-Related Exemption: If non-occupancy is due to employment/business reasons and you reside in another property or a rented property in the city of employment, exemption on interest payment is limited to INR 2 lakh.

Understanding these exceptions is vital for accurate tax planning and compliance with Section 24 provisions.

What Are the Conditions to Claim Deduction on Home Loan Interest?

To avail of the deduction of up to INR 2,00,000 on self-occupied house properties, individuals must meet the following conditions:

Loan Acquisition Date: Individuals must have borrowed a home loan on or after April 1, 1999, for the construction or purchase of a housing property.

Completion Timeline: The house must be acquired or constructed within 5 years from the completion of the financial year in which the loan was taken.

Possession of Interest Certificate: Assessees should possess an interest certificate for the interest payable towards the borrowed fund.

If these conditions are not met, the deduction limit on home loan interest rates for self-occupied properties may be limited to INR 30,000. Additional conditions for the INR 30,000 deduction includes borrowing a loan before April 1, 1999, or taking a loan on or after that date but failing to complete construction within 5 years.

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Conclusion

In conclusion, mastering the intricacies of Section 24 is essential for navigating income tax deductions on property loans. As you embark on the journey of homeownership, consider the financial empowerment offered by SMFG Grihashakti Home Loans. With competitive interest rates, flexible terms, and a commitment to your financial goals, SMFG Grihashakti ensures that your path to homeownership is not just a dream but a well-planned and fulfilling reality. Explore the possibilities with SMFG Grihashakti Home Loans.