Tax Deductions Under Section 24 of Income Tax for Homeowners

Tax Deductions Under Section 24 of Income Tax for Homeowners

To be able to buy and live in one’s own house is a dream of many. But the increasing property rates are making it difficult to fulfill this dream without taking a loan; however, thanks to banks and several financial institutions that are providing home loans with easy and convenient EMI options.

Not only banks but the Government also provides several benefits to individuals availing a home loan. One of such benefits includes tax deduction from income of house property. Section 24 of the Indian Income Tax Act talks about such deductions.

What Are Taxable Incomes From House Property ?

As per the Income Tax Act, 1961, the following incomes are taxable under the Income from house property category.

Rental income from let out property

Annual value of self-occupied property stays Nil
Annual value of the property that is deemed to be out for income tax purpose.

What Are Deductions Under House Property As Per Section 24?

· Municipal tax deduction

The annual amount paid to the municipal corporation of the area is the municipal tax. These taxes are to be deducted from the gross annual value to get the net value of the house property. Deduction on municipal tax is granted if it is borne by the house owner and paid during that financial year.

· Standard deduction

30% of the net annual value calculated is standard deduction. This is allowed when your expenditure on the property is higher or lower as well. It is irrespective of the expenditure that you incur on insurance, electricity, repairs, water supply, etc. The annual value is Nil for self-occupied property, and the standard deduction is zero in that case.

· Deduction of interest on home loan for property

Homeowners get to claim a deduction of up to ₹2 lakh on the home loan interest if their own family resides in that property. The same is applied when the house is vacant. In case you let out the property on rent, the entire interest on the home loan is allowed as a deduction.

Pre Construction Interest On Home Loan

You can claim a deduction on the interest of pre-construction when you take a loan for buying or constructing a house property. However, you cannot claim in case of repair or reconstruction. The total amount of pre-construction, including the interest on the housing loan to be claimed, should not exceed ₹2 lakh. The deduction on this interest is allowed in five equal instalments.

Conditions For Claiming Deduction On Home Loan

One must meet all of the following conditions to claim this deduction.

The loan must be taken after the 1st of April 1999 for purchase or construction purpose.
The construction or acquisition must be completed within 5 years.
For interest payable on the loan there is an interest certificate offered. Interest deduction may be limited to ₹30,000 in the following cases:
- The loan is borrowed before 1^st April 1999 for purchase, repair, reconstruction, construction purpose.
- The loan is borrowed on or after 1^stApril 1999 for purchase, repair, reconstruction, construction purpose.

Computation Of Income Under House Property

TYPE OF HOUSE PROPERTY	SELF OCCUPIED	LET OUT
Gross annual Value (Rent paid- 7000*12)	NIL	84,000
Less: Municipal Taxes or Taxes paid to local authorities	NA	3,000
Net Annual Value(NAV)	NA	81,000
Less: Standard Deduction(30% of NAV)	NA	24,300
Less: Interest on Housing Loan	2,00,000	2,00,000
Less: Pre-construction interest (1/5th of 3 Lakhs)	60,000	60,000
Income from House Property	(2,60,000)	(2,03,300)
Overall loss restricted to	(2,00,000)	(2,00,000)

Note: The maximum loss set-offs allowed in one financial year is limited up to ₹2 lakh.

What is Section 24 of Income Tax?

Section 24 of the Indian Income Tax Act, 1961 takes into consideration the amount of interest an individual pay for home loans. This is also known as “Deductions from income from house property.” Basically, it allows you to claim tax exemptions on the interest amount of your home loan.

The maximum tax deduction limit under section 24 is Rs. 1, 50,000. And one does not have to particularly live in that house to be able to apply for tax deductions.
The income from house property is considered for tax deductions under the following circumstances.

If you are renting a house, then the rent amount is considered income.
If you have more than one house, then the net annual value of all the houses is considered as income.

However, if an individual has only one house and is living in that one, then the income from that property is considered nil.

Deductions Under Section 24 of Income Tax

Following deductions are allowed under section 24 of the Indian Income Tax Act of 1961

Standard deduction under section 24:

Under this section, the standard deduction in income tax is 30 % of the Net Annual Value. However, this deduction is not applicable to the self-occupied house.

Interest on home loan:

Tax exemption is allowed on interest amount of property that is acquired, repaired, constructed, reconstructed, or renewed. So, if a loan is availed to carry out any such mentioned activity, then the interest on such loan is exempted and can be claimed as deduction under Section 24.

Important points to note before claiming the maximum deduction on home loan:

No income tax benefit is provided on brokerage or commission that one has to pay to middle agents.
If the house is not occupied by the taxpayer, then he/she can claim exemptions on the entire interest amount without any upper limit.
To be able to claim the maximum deduction, house-owner should purchase or finish construction of home within three years of taking a home loan.

What is Section 24 of the income tax act?

For many Indians, having their own home is a dream come true. As real estate prices rise quickly, it is becoming more difficult to own a home without a mortgage. Obtaining a home loan from a bank or other financial organisation is very simple. However, the loan has a high EMI, which comprises interest and principal.

The Indian government recognises the individual's suffering. Hence, it offers a tax break against the principal and interest payments. Such tax advantages or deductions for house loan interest are covered by Section 24 of the Income Tax Act.

The interest that a person pays on house or property loans is covered by Section 24 of the Income Tax Act. The phrase "Deductions from income from dwelling property" appears in this section. Loan interest and standard deduction are both allowable deductions.

You are eligible for tax exemptions under a number of sections of the Income Tax Act for particular investments and expenses. The purchase of residential property is one of the assets that the Act frequently emphasises. Numerous investments made to purchase your first house are exempt from taxes since the government acknowledges that housing is one of the most significant requirements and an asset.

Section 24, which enables you to request exemptions on the interest that you pay on house loans, is crucial when it comes to mortgages. You can also claim tax advantages for paying back the principal through Section 80C.

"Deductions from income from house property" is the title of Section 24. In the following circumstances, income from residential property is applicable:

a) If you rent out your home(s), then the rent you receive will be counted toward your income.
b) If you own more than one home, then the Annual Net Value of all of your homes—aside from the one you live in—will be counted toward your income.

If you just have one home and live there, then the income from that property will be deducted from your total income. After Section 24 deductions are taken into account, all rental income, as well as the annual value of additional homes, will be taxed.

What are the Deductions under Section 24 of the incoME tax act?

According to Section 24 of the Income Tax Act, there are two different tax deductions:

a) Amounts up to 30% of the net yearly value are exempt from taxation under this exemption, which is available to all taxpayers. If you live in the sole residence you own, then this rule does not apply to you.

b) Interest paid on loan: If you borrowed money to buy, build, or renovate a home, then the interest you paid on the loan's principal amount is not subject to taxation. Subclauses in this group include:
1) You may be eligible for exemptions of up to Rs. 2 Lakhs if the loan was taken for a self-occupied property.
2) You could still claim the interest if you borrowed money to build or buy a property (not renovate), even if you didn't really build or finish building it. In five equal instalments starting in the year the house is purchased or the construction is finished, you can claim a deduction for the interest paid before the purchase or construction is finished.
3) You cannot claim a tax exemption for a loan used to renovate or rebuild a home until the work is finished.

In order to qualify for this deduction, you must separately calculate the interest payment you need to make to the bank or other financial institution from which you borrowed the money. You are eligible for an exemption for the total annual interest amount whether or not you have paid the financier the specified sum.

What are the exceptions under Section 24 of the income tax act?

Here are the exceptions under Section 24:

a) If the home is vacant, then you are eligible for an exemption from payment of any interest, up to an unlimited amount.

b) Consider a scenario in which you do not reside in the home because you work or conduct your business in another town, and you instead buy or rent a home at the location of your employment. Then, you may only claim Rs. 2 Lakhs tax exemption on interest payments.

c) For securing the loan or renter, there is no deduction for brokerage or commission.

d) For you to be eligible to deduct the maximum amount of loan interest, you must purchase the house or finish building it within three years of availing of the loan. You can only claim Rs. 30,000 rather than Rs. 2 Lakhs if the construction or acquisition is not finished within three years.

e) For the loan you are taking, an interest certificate is required.

What are the conditions for claiming Interest on Home Loan?

To be eligible for this deduction, you shall satisfy the three requirements listed below.

a) After April 1, 1999, the purchase or construction for which the loan was obtained.

b) The acquisition or construction is finished within five years (3 years until FY 2015–16) following the end of the fiscal year in which the loan was taken.

c) An interest certificate for the loan is easily accessible. Your interest deduction can be limited to Rs. 30,000 if one or more of these conditions is true.
1) The real estate was purchased, constructed, repaired, or rebuilt with the loan before April 1, 1999.
2) The loan is obtained on or after April 1, 1999, and is employed to purchase, construct, renovate, or rehabilitate real estate for a residence.

What is Section 80EE Of the Income Tax Act?

In accordance with Sections 24 and 80EE of the Income Tax Act, taxpayers may claim an extra deduction of up to Rs. 50,000 by meeting specified requirements.

An assessee may claim a tax deduction for loan interest paid when determining total income. But only under the following circumstances:

a) A home loan is obtained just to buy a residence for personal use.

b) The taxpayer shall not have any other residential property as of the sanction date.

c) They obtain a loan from a financial institution to purchase a residential home.

d) The loan must be approved between the dates of April 1, 2016, and March 31, 2017, inclusive.

g) The house's total property worth is less than Rs. 50 Lakhs.

f) The loan sanction amount for the purchase of a residential home property is less than Rs. 35 Lakhs

Both sections allow an assessee to make a tax deduction claim. You just need to meet the requirements in both areas. First, make a claim for up to Rs. 2 Lakhs in tax advantages under Section 24. Additionally, utilise Section 80EE to collect the subsequent Rs. 50,000 in home loan interest. You can ensure you receive a deduction of a total of Rs. 2,50,000 in interest this way.

What is deduction under 24A?

Section 24 contains a list of deductions available to those who earn income from house property.

Section 24A contains the provisions of the standard deduction available to taxpayers who earn income from rented house property. This section provides a standard deduction of 30% on the net annual value of the rented house property. This exemption is not available for self-occupied properties.

The idea of allowing a flat 30% deduction was to cover any maintenance charges of the property and offer hassle-free tax computing solutions to the taxpayers. Additionally, the municipal taxes and home loan interest paid can also be deducted from the net annual value of the rented house property.

The net annual value of the rented house property is the annual rent received from the house property.

How to claim both 80EE and section 24?

Both Section 24 and Section 80EE offer deductions to reduce the income from house property. These deductions are especially useful to claim deductions when the taxpayer has a home loan. These deductions are allowed on home loan interest paid.

Section 80EE is a special deduction of an additional Rs. 50,000 allowed to taxpayers who meet the following conditions:

The home loan is taken for a self-occupied property purchased for personal use
The taxpayer should not have any other house property on the date of home loan sanction
The loan should be from a financial institution.
The loan must be approved between April 01, 2016, to March 31, 2017,
The value of the house property must be less than Rs. 50 lakhs
The loan sanction amount must be less than Rs. 35 lakhs

Section 24 allows a Rs. 2 lakh deduction on the home loan interest paid whether the property is self-occupied or let out. In case the property is rented out, there is no cap of Rs. 2 lakhs and the entire interest paid on the home loan can be claimed as a deduction.

To claim both deductions under Section 80EE and Section 24, all of the conditions should be met. The maximum deduction available on both sections together is Rs. 2.5 lakhs. Section 24 is claimed as a deduction under income from house property while filing income tax returns. Section 80EE is claimed as a deduction under the head ‘Deductions Under Chapter VI’ while filing income tax returns.

The home loan repayment schedule and tax certificates are the documents that can be submitted as proof of investment to claim the deductions.

What is the difference between Section 24 and 80EE?

Section 80EE is a special section added to allow an additional deduction on home loan interest to taxpayers who have a home loan and a self-occupied property. However, this was only available to taxpayers who took a home loan from a financial institution between April 01, 2016, and March 31, 2018. The maximum deduction of home loan interest that can be claimed under this section is Rs. 50,000.

Section 24B allows the deduction of home loan interest from their house property, whether it is rented out or self-occupied. However, in the case of self-occupied property, the deduction is capped at Rs. 2,00,000.

Deductions under Section 24 are available for all types of home loan interest, whereas deduction under Section 80EE is only available for those who meet the specific criteria.

Deduction under Section 80EE is claimed from Chapter VI deductions, and deduction under 24 is claimed under income from house property.

How to claim tax benefits on a home loan?

There are a number of ways in which a taxpayer can claim benefits on a home loan. The tax benefits available for a self-occupied property are different from the tax benefits available for a rented-out property.

Tax benefits for a self-occupied property

The net annual income from house property will remain nil.
The taxpayer can deduct the property paid in that financial year from the net annual income under income from the house property. Since the income is nil, this entire amount is available as a deduction.
The taxpayer can claim a deduction of home loan interest under Section 24B up to Rs. 2,00,000. This will also be deducted from the income from the house property section.
The taxpayer can claim a deduction of the principal amount paid against the home loan. This deduction is available under Section 80C. However, the total limit for deduction under Section 80C is Rs. 1,50,000. Therefore, taxpayers must be careful and check the other investments that give them deductions under Section 80C.
If the taxpayer meets the criteria to avail the deduction under Section 80EE, then an additional Rs. 50,000 deduction can be availed.

Tax benefits for a rent-out property,

The net annual income from the house property will be the annual rental income from the house property.

The taxpayer gets a standard deduction of 30% on the net annual income.

The taxpayer can deduct the property paid in that financial year from the net annual income.

The taxpayer can claim a deduction of the entire home loan interest under Section 24B. This will also be deducted from the income from the house property section.

The taxpayer can claim a deduction of the principal amount paid against the home loan. This deduction is available under Section 80C. However, the total limit for deduction under Section 80Cis Rs. 1,50,000. Therefore, taxpayers must be careful and check the other investments that give them deductions under Section 80C.

If the taxpayer meets the criteria to avail the deduction under Section 80EE, then an additional Rs. 50,000 deduction can be availed.

Section 80C to Section 80U deductions are available as Deductions under Chapter VI. The others will be deducted from the income from the house property and could appear as negative income, which is then set off against other eligible sources of income.

Can we claim 24B for an under-construction property?

As per Section 24B, if a taxpayer has taken a home loan for a property that is under construction, the taxpayer can claim a deduction of the home loan interest subject to certain conditions being met, which are as follows:

This type of interest is called pre-construction interest and can only be claimed after the construction of the property is completed.

The pre-construction interest can only be claimed in 5 equal annual instalments. For example, if a taxpayer paid interest on a home loan for 2 years amounting to Rs. 2,50,000, while the property was being constructed, the taxpayer can claim this pre-construction interest as a deduction in 5 equal instalments of Rs. 50,000 in each year after the construction has been completed.

The construction of the property should be completed within 5 years. Otherwise, the permissible deduction will be limited to Rs. 30,000.

If it is a self-occupied property, the maximum deduction on home loan interest available is Rs. 2,00,000 per year. Therefore, the total of the pre-construction interest instalment of that year plus the actual interest on the home loanpaid in that year cannot exceed Rs. 2 lakhs.

Is a plot loan eligible for tax exemption?

Buying a plot of land does not categorise as income from house property, and therefore, the deductions under Section 24 are not available. However, the principal component of the loan taken to buy the plot of land can be claimed as a deduction under Section 80C up to a maximum limit of Rs. 1,50,000.

Can we claim both HRA and a home loan?

A taxpayer can claim both House Rent Allowance (available as part of salary) and home loan-related deductions only if the taxpayer is working in a different city and staying on rent while the home loan is taken for a house property in a different city where the family of taxpayer resides. If the taxpayer stays in a rented accommodation and has rented out a house property against which the home loan is taken, both HRA and home loan deductions can be claimed, provided the income is shown properly.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Truefiles.in is not liable for any decision arising out of the use of this information.

Source : Aditya Birla Capital Group