What is Section 24 Of the Income Tax Act?
Section 24 of Income Tax Act is the key tax relief on homeownership in India. It allows for deductions on
income from house property, helping taxpayers reduce their taxable income and ultimately lowering the tax burden.
Section 24 of Income Tax Act India of 1961 considers the amount of interest a taxpayer pays for home loans.
Often referred to as deductions from income from house property, it allows taxpayers to assert tax exemptions on the
interest of home loans. The maximum amount of deduction under section 24 of Income Tax Act is Rs. 1.5 lakhs.
The benefits of Section 24 of income tax extend beyond loan interest. Taxpayers can claim deductions for
municipal taxes and interest paid on pre-construction until the year the property is acquired is also eligible for
deduction in five equal installments.
Since the income from house property is taken into consideration and a person can hold more than one house,
it is crucial to understand the definition of income as given in Section 24.
Income As Defined Under Section 24 of Income Tax Act
Section 2 24 of Income Tax Act defines income for taxation. Income is inclusive of salaries, income from
house property, profits and gains of business or profession, income from other sources, capital gains, contribution
of EPF account, VRS compensation, winnings from lotteries, and foreign income.
The section excludes agricultural income, income from a charitable institution or trust, and income from
the Hindu Undivided Family (HUF) from the computation of income.
There are three scenarios wherein income occurs from house property:
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- Housing income by way of rent.
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- The annual value of the property that it deemed to be let out.
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- The annual value of the property that is self-occupied
Here are a few points to keep in mind while analyzing income from house property:
Section 24 of the Income Tax Act calculates tax on house property on the Net Annual Value of the property.
In case the house is vacant for a particular period and later it is let out, the owner or deemed owner receives the
rent, computation of income should be done only on the rent received and not the whole year.
Contrarily, if the taxpayer’s home is vacant for the whole year, the taxpayer is residing at
different locations, then income is computed from other sources like salary within the same year. This income can be
carried forward for up to eight years.
Benefits Available Under Section 24
Taxpayers can claim the following tax benefits;
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- Tax deduction on rental income: Taxpayers can claim a flat 30% on the net
annual value of the house or rental income received. This deduction is referred to as a standard deduction
on rental income and is not applicable on self-occupied housing properties. The main purpose of this Section
24 deduction is to provide tax relief for any property taxes and maintenance charges for property upkeep
that may be incurred during the year.
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- Tax Benefit on Home Loan Interest Payment: Annual deduction of up to Rs. 2
lakhs can be claimed for repayment of home loan interest. This tax benefit is limited to the actual amount
of home loan interest the taxpayer has repaid up to the maximum limit. To avail of this benefit, taxpayers
must calculate the interest payment to banks or other financial institutions from where the money has been
borrowed.
Conditions for Claiming Deductions on Home Loan
To be eligible for claiming deductions on interest on home loans, taxpayers must satisfy three
requirements:
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- If the loan obtained for a property purchased or constructed after April 1,
1999
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- If the acquisition or construction of the home is finished within five years
following the end of the fiscal year when the loan was taken
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- If the interest certificate of the loan is easily accessible.
Following Section 24 and 80 EE of the Income
Tax Act, taxpayers can avail an extra deduction of up to Rs. 50000 by meeting specified requirements under
the following circumstances:
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- If a home loan was taken to buy a residence for personal use
- If the taxpayer does not have any other residential property at the date of
sanction of the loan
- If a taxpayer obtains a loan from a financial institution to purchase a
residential home
- If the loan was approved between April 1, 2016 to March 31, 2017 (inclusive)
- If the house’s total property worth is less than Rs. 50 lakhs
- If the loan sanction amount for the purchase of a residential property is
less than Rs. 35 lakhs
Taxpayers can benefit from deductions from both sections. Firstly, claim for up to Rs. 2 lakhs in tax
advantage under Section 24 of the Income Tax Act, and secondly utilise Section 80 EE to collect Rs. 50000 in home
loan interest.
Deductions Beyond Section 24
In addition to Section 24 of the Income Tax Act, taxpayers can avail of home loan benefits of up to Rs. 1.5
lakhs in a year if the housing property is first home to the taxpayer. The same property should not cost more than
Rs. 45 lakh 9affordable housing.
Taxpayers can also benefit if the loan has been sanctioned between April 1, 2019, to March 31, 2022. These
interest repayment benefits are additional to the Section 80 C investment and deduction benefits that are worth up
to Rs. 1.5 lakhs.
FAQs
What is the limit of Section 24 exemption?
Section 24 1 of Income Tax Act exempts homeowners to claim a deduction of up to Rs. 2 lakhs on their home
loan interest in case the owner or his family resides in the property. When the house is on rent, the entire
interest is waived off as a deduction.
What is the difference between Section 24 and 80 EEA?
While both sections are meant to claim the deductions, there is no possession required for 80 EEA
deduction. Once you start the interest payment process, you can claim an exception. However, for claim deduction
under Section 24, you must have possession of the property.
What is Section 24 eligibility criteria?
The most essential criterion to avail of benefits of Section 24 Income Tax India is that the property must
be self-owned. While tax benefits is fixed at 30%, there is no maximum limit specified under Section 24 (a).
Taxpayers can avail tax deduction of up to Rs. 2 lakhs under Section 24 (b) if they have taken a home loan
on or after April 1, 1999. Taxpayers must possess an interest certificate showing the interest amount payable
against the borrowed amount. The property should be built or owned within five years from the financial year it was
borrowed.
What is Section 24 for joint owners?
Joint owners can enjoy maximum tax benefits of up to Rs 2 Lakhs on the amount paid towards the interest on
home loans as per their ITR statements. The amount paid towards interest is proportional to the percentage ownership
of each co-applicant.
However, to avail of the tax benefits, both co-owners and co-borrowers are the same. Their name must be on
the loan book to request the benefit.
What is Section 24 deduction list?
Section 24 deductions can help reduce tax outgo. A standard deduction of 30% is applicable on the net
annual value of the property even if the definite expenditure on the property is higher or lower. Besides, tax
exemption is allowed on the interest amount of property that is repaired, acquired, constructed, reconstructed, or
renewed.
