Deduction 24 From House Property Income: You can get tax exemptions on specific investments and expenditures under several sections of the Income Tax Act. The Act constantly stresses the importance of residential property and property as an investment. A lot of investments towards your first home can get lots of income tax deductions (Section 24, Section 80C, Section 80EE) because the government recognizes that housing is an important need and asset.
An individual who pays interest on home or property loans can get an income tax deduction under section 24 of the Income Tax Act. There are two types of deductions available: loan interest and the standard deduction. We will discuss in this article section 24, the deduction of home loan interest.
Those who live in the house property can deduct up to Rs 2 lakh on their home loan interest. Vacant houses are treated the same way. A person who rents out a property is able to deduct the whole interest paid on the home loan.
Deduction Under Section 24
The following two deductions are available under section 24 as follows.
|Deduction||Self-Occupied Property (Residential)||Let-Out Property|
|Standard Deduction||Not Applicable||Applicable 30% of Net Annual Value|
|Interest on Home Loan||The maximum amount of deduction allowed in such a case is Rs.2,00,000 (up to two houses)||The entire interest is Allowed as a Deduction|
- Let out Properties: Standard deduction is 30% of the Net annual value. This 30% deduction is for the expenditure incurred on insurance, repair & maintenance, electricity, water supply or any other expenditure which you may have incurred. This is a flat deduction of 30% i.e. actual expenditure may be high or less this 30% deduction can be claimed by everyone. It is only applicable to the let-out property.
- Self-Occupied Properties: But in the case of self-occupied house property, since the annual value is Nil, the standard deduction is also Nil. The income under head house property cannot be negative because of the standard deduction. So, in case of self-occupied property you are not allowed to get a standard deduction.
Interest on Borrowed Capital Deduction
- Let out Property: If you have taken a home loan for construction, purchase, repair, renewal or reconstruction of your house property, the interest paid on that loan is allowed as a deduction under this section. Deduction for interest on the loan is allowed on a due basis i.e. actual payment is not necessary for claiming this deduction, unlike municipal taxes. So every individual should keep on claiming this deduction for each year the interest is due irrespective of actual payment. There is no deduction allowed for any brokerage and commission paid for arranging this loan.
- Self-Occupied Property: In the case of self-occupied also this deduction is allowed and due to which one may have a loss under head house property. The maximum amount of deduction allowed in such a case is Rs.2,00,000 w.e.f. AY 2015-16. In case of letting out or deemed to be let out property, the entire interest is allowed as a deduction. This is the deduction which could be claimed after completion of construction of the house property.
Updates under section 24: From A.Y.2020-21: The provisions have been amended to exempt notional income pertaining to 2 self-occupied residential house properties. The following provisions will be applicable from A.Y.2020-21 as follows:
- If a person occupies 2 house properties for his own residential purposes, the annual value of both the properties will be taken as nil. Aggregate interest on capital borrowed for the purpose of purchase/construction of these properties will be deductible up to Rs.2,00,000 (subject to similar conditions as were applicable earlier).
- If a person occupies more than two house properties for his own residential purposes, only two properties (according to his own choice) will be treated as self-occupied properties and other houses will be “deemed to be let out”. In the case of two self-occupied properties (as selected by the assessee), the annual value will be nil and aggregate interest on borrowed capital will be deductible up to Rs.2,00,000 (subject to similar conditions as were applicable earlier). In the case of “deemed to be let out” properties, taxable income will be calculated as if such properties are let out properties.
Conditions for Claiming Deduction u/s 24
The conditions for claiming deduction under section 24 from house property income are as follows.
- The loan has been taken after 1 April 1999
- The loan must be taken for purchase or construction
- The acquisition or construction is completed within 5 years from the end of the financial year in which the loan was taken
- There is an interest certificate available for the interest payable on the loan
For claiming Rs.2,00,000 as a deduction all of the above conditions need to be fulfilled. This deduction may be limited to Rs.30,000 in case any of the above conditions are not fulfilled i.e. loan taken before 1-4-1999 or for the purpose of repair, maintenance, reconstruction or renewal or the construction is not completed within 3 years.
Some Other Points to be Considered
- Interest on interest is not deductible. The interest payable on borrowed capital is deductible only.
- In case the municipal taxes are borne by the occupier, then no deduction of Municipal taxes.
- Where the new loan has been taken for the repayment of the old loan, this new loan is merely used for repayment of the original loan, and then interest on a new loan is allowed as a deduction.
Recommended Read: Income From House Property: Deductions & Tax Planning