Section 24 of income tax act | types of deductions, exemptions, and more

What is Section 24 of the Income Tax Act of 1961?

Section 24 offers tax deductions on ‘income from house property’ and the interest paid towards home or property loans.

The following types of income fall under the category of ‘income from house property’ under this section:

• An individual renting a house(s): The rent received from a house is accounted as part of the individual’s income.
• An individual owning more than one house: The net annual value of all the houses except the one where the individual resides is considered as the individual’s income.

Hence, a property’s rental income and net annual value are eligible for a tax deduction under Section 24. However, if an individual owns only one house and resides in that house, the income from such housing property is considered nil and, therefore, cannot be claimed for a tax deduction.

Deductions under Section 24

Section 24 of the Income Tax Act includes the following types of deductions:

• Deduction on the interest of a home loan: Section 24 of the Income Tax Act allows an individual to claim a tax deduction of up to ₹2 lakhs on the interest paid towards a home loan taken for the purchase, renovation, or construction of a house.
• Standard deduction: An eligible taxpayer can avail of a tax deduction of 30% on the net annual value of a property. The deduction is offered irrespective of the costs incurred on electricity, repair, insurance, water supply, etc.
• Municipal deduction: This is the annual payment made by an individual to the municipal corporation of a respective area. The tax is deducted from the gross annual value to find the net annual value of the housing property. Homeowners who have paid the municipal tax in a financial year can avail of tax deductions under the said section.

Further, the income tax deductions under Section 24 are limited to ₹30,000 under the following conditions:

• Failing to meet the conditions mentioned above.
• Loan borrowed before April 1, 1999, for house repair, reconstruction, purchase, or construction.
• Loan borrowed on or after April 1, 1999, for repair, reconstruction, or renovation of existing property.

Additional rules under Section 24

• The borrower must possess an interest certificate for the borrowed loan.
• The loan should be taken on or after April 1, 1999, for buying or constructing a property.
• If an individual is not occupying the house, then the entire amount of interest on the home loan is eligible for a tax deduction under Section 24 with no upper limit.
• An individual not occupying the house and living in a rented property in another city or area closer to their place of employment or business can claim income tax exemptions under Section 24.
• If a loan is taken for the purchase or construction of a property, one can claim the deduction before the purchase or construction is complete. But the deduction is available in five equal instalments from the year of purchase or completion of construction.
• One must ensure the construction or acquisition is complete within five years of borrowing (three years till FY 2015-2016).
• An individual cannot claim a deduction for the charges paid towards commission or brokerage to find a tenant or loan.
• If a loan is taken to reconstruct or renovate a property, one cannot claim the deduction unless the reconstruction or renovation is complete.

Income tax calculation under Section 24

The following points will make it easier to understand the basics of income tax calculation under Section 24:

• Only the net annual value of the housing property is considered.
• If the house(s) is/are vacant due to the lack of tenants, then only the amount received as rent for the months of occupation is considered rental income and not the entire 12 months.
• If the house(s) is/are vacant and does not offer any income, but the owner is paying municipal taxes, one can offset the loss against the income from other sources within the same financial year.

Conclusion

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