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Section 24 of Income Tax Act: Tax deduction against home loan interest payment

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Here is how you can claim deductions on tax liability under income from house property using provisions under Section 24 of the Income Tax Act.

Sec 24: What is income from house property?

While Section 24 of the I-T Act provides for levying tax on rental income from the property belonging to owners under income from house property, its sub-sections – Section 24A and Section 24B – talk about deductions they can claim in two different scenarios.

Applicability of Section 24A: Standard deduction

Section 24A provides a flat 30% deduction on the net annual value of the rented property, in case the property has been bought using the owner’s own money. So, if Ram bought a house and gave it on rent for an annual rent of Rs 1,00,000, then, he can claim a tax deduction of Rs 30,000. However, claiming deduction under Section 24A will not be possible if Ram uses the said property, a condition known as self-occupied. However, Section24B gives you a window to claim the deduction in case of self-occupied properties too, provided a housing loan is involved. Let us understand how.

Applicability of Section 24A of I-T Act on rented property: Deduction against home loan interest payment

Particulars Amount
Gross annual value (GAV) Rs 10.20 lakhs
Deduct from GAV the municipal tax to arrive at the net annual value (NAV) Rs 20,000
NAV Rs 10 lakhs
Exemptions available
Standard deduction of 30% on NAV under Section 24(A) Rs 3 lakhs
Deduction of up to Rs 2 lakhs on home loan interest paid NIL
Total deduction Rs 3 lakhs

Applicability of Sec 24B

In the case of self-occupied property, its annual value is considered ‘nil’. This would, in fact, result in the loss of the property. In such a case, the borrower can claim a tax deduction of up to Rs 2 lakhs on home loan interest paid in a financial year under Section 24B. In case the property is generating rental income, the entire home loan interest component is allowed as a deduction.

Applicability of Section 24 of I-T Act on self-occupied house property

Particulars Amount
Gross annual value (GAV) Nil
Deduct from GAV the municipal tax to arrive at the net annual value (NAV) Nil
NAV Nil
Exemptions available
Standard deduction of 30% on NAV under Section 24(A) Nil
Deduction of up to Rs 2 lakhs on home loan interest paid Rs 2 lakhs
Loss from house property Rs 2 lakhs

 

Note, this deduction would be restricted to Rs 30,000 only, in case:

  1. The home loan was taken before April 1, 1991.
  2. The loan is used for repairs, renewal, or reconstruction, even though it was borrowed after April 1, 1991
  3. The loan was taken on April 1, 1991, or after that, but house construction was not completed in five years. So, if the loan was taken on April 1, 2022, the house must be completed by March 31, 2027. In such a case, the deduction amount is reduced to flat Rs 30,000.

Also note, that this deduction will not be allowed unless you provide a certificate about the home loan interest payment from your lender.

“No deduction shall be made … unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan,” reads Section 24.

 

Section 24 of Income Tax Act: Tax deduction against home loan interest payment

 

Applicability of Sec 24 in case of rented property purchased using the home loan

In case you have taken a home loan to buy a property and have now given it on rent, the entire amount paid as the home loan interest component can be claimed as a deduction under Section 24.

Sec 24: Various scenarios

Property type GAV Deduction for property tax NAV Standard deduction Exemption on home loan interest
Self-occupied/vacant Nil Nil Nil Nil Rs 2 lakhs
Rented The rent earned or the expected rent, whichever is higher The amount paid during the year The amount after subtracting property tax 30% of NAV The entire amount paid during the year

Sec 24: How is it different from 80C?

Unlike Section 80C, which offers a tax deduction on the home loan principal component on a ‘payment basis’, Section 24 allows deductions on an ‘accrual basis’. Basically, the interest payment would be calculated for each year separately and deductions can be claimed, even if no actual payment has been made.

 

Source:-https://housing.com/news/section-24-of-income-tax-act-deduction/

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