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Section 24 of the Income Tax Act

Section 24 of the Income Tax Act (Key to Reduce Your Tax Liability)

Section 24 of the income tax act is also known as Deductions from income from house property. 

Several sections in the Income Tax Act allow you to get tax exemptions on specific investments and expenditures. One of those investments is the purchase of a residential property. The government insists that housing is one of the most required assets, and investment towards your first home has many exemptions from tax payment.

A crucial section regarding home loans is section 24, which allows exemptions on the interest on your home loans. Section 80C is for tax benefits on the repayment of the principal amount of your home loan.

Section 24 of the income tax act is named Deductions from income from house property. The following gains add under the head income from house property:

  1. If you are renting out your house(s), the rent you receive will be a part of your income;
  2. If you have more than one house, the net annual value of the houses, except the one you live in, is your income.

If you own only one house where you live, the income from the house property is NIL. If you receive any revenue from your other home, it is subject to tax after deductions made under Section 24 of the income tax act.

What Is Section 24?

Section 24 of the income tax Act of 1961 considers the amount of interest you pay for your home loans. It is often known as “Deductions from income from house property.” It permits you to claim tax exemptions on the interest amount of your home loan. The maximum income tax deduction limit under section 24 is Rs. 1, 50,000. And you don’t need to live in that house to apply for tax deductions. The income from your house property also comes under tax deductions. If you’re renting a house, your rent amount is your income. If you’ve got more than one house, then the net value of all the homes is added to your revenue.

Is Section 24 and 80EE Different?

Section 24(b) allows you a deduction of Rs 2 lakh if you occupy the property, and the entire interest is deductible for letting out the property.

However, under Section 80EE, you can claim an additional deduction of Rs 50,000 after exhausting the limit of Section 24(b).

You can avail of this if you buy the house for the first time. You can claim the deduction under section 80EE over and above the deduction under section 24.

Can I Claim Both 80C and Section 24?

You can claim deductions for your home loan under sections 80C and 24.

Section 24 deals with the deductions for the interest you pay on your home loan. You can claim a maximum of up to Rs 2 lakh under Section 24(b) for a self-occupied home. 

Section 80C has options to claim the principal amount of your home loan. The maximum limit under section 80C is Rs 1.5 lakh.

Hence, you can claim deductions under both 80C and 24 sections for your principal and interest repayment.

What Is a Deduction under Section 24 in Income Tax?

Two deductions come under section 24 of the income tax act.

  1. Standard deduction: 30% of your net annual value does not come under the tax limit. It means you enjoy a deduction of 30% from the net value of the house. However, the standard deduction is not for you if you occupy your home. As you know, the annual value of a self-occupied home is NIL, so the standard deduction is also NIL.
  1. Interest on loan: If you have availed a home loan for the purchase, construction, or renovation of your house, you can exempt the interest you pay on the principal amount of your loan from tax. This category includes:
    • If you avail of a loan for a self-occupied property, you can claim exemptions of up to Rs. 2 lakhs.
    • If you took a loan for the purchase or construction (not renovation) of a property before actually buying or completing its construction, you still claim the interest. You can seek deductions on your interest even before the completion of construction or purchase. You can claim deductions for five equal installments, from the year you bought the house.
    • If you took the loan for the renovation or reconstruction of a house, you cannot claim tax exemption until you complete the renovation.

To avail of these deductions, you should compute the interest amount for your loan, separate from the principal repayment. It does not matter whether you have paid the amount to the bank – you can get an exemption for the whole annual interest amount.

What Is the Maximum Limit of Section 24B?

The maximum deduction limit you can claim on the interest amount of your home loan is Rs. 2,00,000. This limit is applicable for both rental and self-occupied housing properties. Suppose you have two self-occupied housing properties, you can also claim a deduction on the interest.

However, the deduction limit of ₹ 2,00,000 reduces to ₹ 30,000 in case of:

  1. If you borrowed a loan before 1st April 1999 to buy or construct a new housing property.
  2. If you borrowed a loan on or after 1st April 1999, to repair or renovate an existing house.
  3. If you borrowed a loan on or after 1st April 1999, and you fail to complete the house construction within five years from the year you took the loan.

Can I Claim Section 24 and HRA?

If you get a home loan and receive HRA as part of your salary, you can claim deductions for both and reduce your taxable income.

There may be cases where you reside in one city owing to job purposes in a rental property, and you have your own house under a home loan in a different city. In such case, you can claim deductions under

  1. Section 24 for the interest repayment on your home loan.
  2. HRA exemption for your rent payment.
  3. Section 80C for your principal repayment.

Thus you can claim deductions under both Section 24 and HRA under particular situations.

How Is Section 24 Calculated?

Calculate the net annual value of your house and reduce Rs. 2 lakhs for the interest component of your home loan under Section 24. The remaining amount is your taxable income, and you are liable to pay tax for that amount under the respective income tax slab.

Does Section 24 Apply to Commercial Property?

Yes, Section 24 applies to all property either commercial or residential or any other property. You can claim deductions for the interest amount of your loan for all types of properties.

Bottomline

Section 24 of the income tax act is also known as Deductions from income from house property. Section 24 deals with deductions for the interest component of your home loan. You can exempt the entire interest amount of your home loan under this section. Thus, the Income Tax Department of India encourages you to buy your own property which is an asset to you, by providing lots of deductions and exemptions.

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