Section 24 of Income Tax Act

  • Author :
  • TATA AIG Team
  • Published on :
  • 02/01/2024

The Income Tax Act of any country is a complex legal framework that governs the taxation of individuals and businesses. In the Indian context, Section 24 of the Income Tax Act holds significance as it addresses the deductions available on the interest paid on home loans.

A person may be eligible for a number of deductions and exemptions under the Income Tax Act of 1961, depending on the kind of income they may receive during the fiscal year. Section 24 of the Income Tax Act, which contains provisions for deductions that can be claimed on income from house property, is one such section that can help you save income tax.

In order to comprehend important information regarding the Income Tax Act of 1961's eligibility requirements and deduction caps, we will look into section 24 of the income tax act example and its major subsections in greater detail in this blog.

What is Section 24 of Income Tax Act?

Section 24 of the Income Tax Act specifies the key deduction from house property income that can be claimed under the Income Tax Act of 1961. As a result, those who do not own a home cannot benefit from the provisions of this section of the Income Tax Act.

Two subsections, Section 24 (a) and Section 24 (b), which address various facets of owning and renting out residential property, are also included in Section 24.

Section 24 (a) addresses the deduction for rental income from residential property.

Section 24 (b) addresses the yearly tax deduction applicable in the case of interest repayment on a mortgage used for the purchase/construction of a house property.

Types of Deductions Under Section 24 Income Tax Act

Section 24 provides two main types of deductions, which are listed below:

Deduction for Self-Occupied Property

If you have taken a home loan for a property that you reside in, the interest that is paid on the loan is eligible for deduction under Section 24(b). The maximum deduction that is allowed is ₹2 Lakh per annum.

It is important to note that this deduction is available only for property in which the taxpayer resides, and the property should not be let out or used for any business or profession.

Deduction for Let-Out Property

For properties that are let out, the entire interest paid on the home loan is eligible for the deduction under section 24(b) without any upper limit. This is a significant benefit for people who have invested in real estate to gain rental income.

Conditions to Claim Deductions on Home Loan Interest

While Section 24 deductions are advantageous, there are certain conditions that taxpayers must meet in order to claim these benefits:

Completion of Construction

The deduction is available only if the construction of the property is completed. The interest paid during the pre-construction period can easily be claimed in five equal instalments, starting from the year of completion.

Loan Purpose

The loan must be taken for the purpose of purchasing, constructing, repairing, renewing, or reconstructing the property.

Ownership

The taxpayer claiming the deduction must be the owner of the property.

Interest Certificate

To claim the section 24 housing loan interest, the taxpayer must possess an interest certificate from the lender specifying the amount of interest paid during the financial year.

Eligibility Criteria for Section 24(a) Rental Income Deduction

The most important requirement for claiming the Section 24(a) deduction on rental income is that the property be self-owned. Aside from that, other factors to consider are:

Only let-out property is eligible; self-occupied property is not.

Section 24(a) can be claimed for all properties other than one self-occupied property when owning multiple house properties. For tax purposes, any property other than a self-occupied residence is considered a source of rental income, whether rented or vacant.

There is no maximum limit stated in Section 24(a), but the tax benefit is limited to 30% of the actual rent acquired or annual value as defined in Section 23 of the Income Tax Act.

Eligibility Criteria for Section 24(b) Housing Loan Interest Deduction

To be eligible for a tax deduction of up to ₹2 lakh per year under Section 24(b) of the Income Tax Act, the taxpayer must meet the following criteria:

You must have obtained a home loan on or after April 1, 1999. This loan will only provide tax benefits under Section 24 if it is used to build or purchase a home.

The property for which the loan was obtained must have been built or acquired within five years of the fiscal year in which it was borrowed.

You must have an interest certificate indicating the amount of interest payable on the borrowed amount.

Income Tax Act Section 24 Deduction Limits

The annual deduction under Section 24(a) is not subject to a maximum amount, as per the current Section 24 rules. A flat 30% deduction from the rental income earned during the fiscal year is made.

Section 24 (b) of the Income Tax Act, on the other hand, allows for a maximum tax benefit of up to ₹2 lakh per year for tax deductions. The actual amount that can be claimed is determined by the amount of annual home loan interest paid by the property owner.

Beyond Section 24 Home Loan Tax Deductions

In addition to Section 24 of the Income Tax Act, home loan benefits of up to ₹150,000 per year can be claimed under Section 80 EEA for interest repayments. If you meet the requirements of both sections, you can claim up to ₹3.5 lakh in tax benefits.

Let us examine the requirements that must be fulfilled in order to apply for 80EEA:

In order to qualify for the interest on home loan deduction, the housing property must be your primary residence.

The property should be eligible for affordable housing if it costs no more than ₹45 lakh.

The loan has to be approved between April 1, 2019, and March 31, 2022.

The home loan income tax rebate only covers accumulated interest.

These benefits for paying back interest are in addition to the Section 80c Investment and deduction benefits, which can be used to repay the principal amount of a home loan up to an annual limit of ₹1.5 lakh.

How Should Income from Housing Properties Be Assessed?

Evaluating interest on housing loans under section 24 from a housing property involves determining the taxable income from that property for the purpose of income tax calculation. The income from a housing property is generally categorised into two main types:

Rental incomes

Calculations: Rental income is the amount received by the property owner from tenants as rent.

Taxability: According to the provisions of the Income Tax Act, rental income is taxable under the heading "income from House Property."

Deductions: Section 24 of the Income Tax Act allows for certain deductions, including a standard deduction of 30% of the yearly value and a deduction for the interest paid on a housing mortgage

Deemed Rental Income for Self-Occupied Property

Calculation: If the property is self-occupied (not rented out), it is considered to generate deemed rental income, which is notional income earned if the property was rented out.

Taxability: This deemed rental income is taxable as "Income from House Property."

Deductions: Similar deductions apply, including the standard deduction and the interest on a home loan deduction.

Wrapping Up

Section 24 of Income Tax Act is important in providing relief to taxpayers who are burdened by housing loan interest. Understanding the provisions and complexities of this section is critical for individuals attempting to minimise their tax liabilities while navigating the complexities of real estate investments.

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FAQS

What is Section 24 in the new tax regime?

Section 24 of the Income Tax Act pertains to the deduction of interest on housing loans. It allows taxpayers to claim deductions on the interest paid on loans taken for the acquisition or construction of the property.

The new tax regime maintains the provision of Section 24, providing relief to individuals on the interest component of their home loans.

How do I declare Section 24 in ITR?

Section 24 must be declared in your Income Tax Return (ITR) by filling out the relevant details in the 'Income from House Property' section. Indicate the amount of interest paid on the mortgage during the fiscal year. Provide accurate information about the property's status (self-occupied or rented) and the loan's purpose (acquisition or construction).

How is Section 24 calculated?

The Section 24 deduction is based on the interest paid on the mortgage during the fiscal year. The maximum deduction for a self-occupied property is ₹2 lakh per year.

The home loan interest deduction section 24 has no upper limit if the property is rented out. It is critical to consider completing property construction or acquisition within the five-year time frame from the end of the fiscal year in which the loan was obtained.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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