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The Income Tax Act, 1961 features a number of deductions and exemptions that apply to various types of income an individual might earn during the financial year. One such section that can help you save income tax is Section 24 of the Income Tax Act, which includes provisions for deductions that can be claimed on income from house property.
In this blog we will take a closer look at Section 24 and its key subsections to understand key details like the eligibility criteria and deduction limits under the Income Tax Act, 1961.
What is Section 24 of the Income Tax Act?
Section 24 of the Income Tax Act provides specifics regarding key deductions that tax payers can avail under the Income Tax Act, 1961 if they have income from house property. So, those who do not own house property cannot save tax using the benefits provided by this section of the Income Tax Act.
Section 24 further consists of two subsections – Section 24 (a) and Section 24 (b), which covers different aspects of owning and renting out a residential property.
- Section 24(a) discusses the deduction applicable to rental income received from house property
- Section 24(b) discusses the deduction applicable to annual income in the case of interest repayment on a home loan used for purchase/construction of house property
We will discuss the applicability like eligibility and annual deduction limits of both of these sub-sections of Section 24 in the following sections of the write-up.
Factors to Consider When Implementing Section 24(a) Deduction
Following are the categories that are considered income from housing property for tax deduction benefits offered under Section 24(a):
- If the property is rented out, the rental received is considered income under Section 24.
- If you own more than one house, the net annual value of the property (as determined under Section 23 of the Income Tax Act) is considered as your rental income. The house in which you reside will not be considered as source of rental income in this case.
- If you own one house and reside there, the rental income received from the home property is considered zero.
It must be noted here that income from rent and additional housing property will be taxed after the deductions made through Section 24 have been claimed.
Benefits Available Under Section 24 of the Income Tax Act
You can claim Section 24 tax benefits in the following manner:
1. Tax Deduction on Rental Income
As a taxpayer, you can claim a 30% deduction (flat) on the net annual value of your house or rental income received (whichever is lower). This deduction available under Section 24(a) does not apply to self-occupied housing property and only to let-out property. This deduction is often referred to as standard deduction on rental income and is its main purpose is to provide tax relief for any property taxes and maintenance charges for property upkeep that may be incurred during the year.
If you own two residential properties, only one can be considered as self-occupied. You have to consider the net annual value of the second property as part of your annual income (even if the property is not let-out) and pay tax on it after applying this 30% deduction. The standard deduction of rent can be claimed by anyone with residential is different from standard deduction on salary that can be availed by salaried individuals and pensioners.
2. Tax Benefit on Home Loan Interest Repayment
This tax deduction benefit can be enjoyed under Section 24(b) of the Income Tax Act. Annual deduction of up to ₹2 lakh can be claimed for repayment of interest on a home loan. However, do remember that the tax benefit you can claim is limited to the actual amount of home loan interest you have repaid up to this maximum limit. The details of interest repayment can be found in the home loan interest certificate provided by the lender.
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So, in case the interest on home loan that you have repaid during the year is less than ₹2 lakh, only the lower actual amount can be availed as tax benefit. Similarly, if the actual amount paid in lieu of home loan interest repayment exceeds ₹2 lakh for the year, you can only claim tax deduction up to ₹2 lakh in this case.
Additionally, you will qualify for the benefit under Section 24(b) only if you have taken the loan for purchasing, constructing, repairing, acquiring, or rebuilding the property in question. Loans used to purchase land for residential property do not provide Section 24(b) tax benefits under current rules. This deduction will also not be applicable if the loan was taken to pay brokerage or commission to a mediator or agent.
Eligibility Criteria for Section 24(a) Rental Income Deduction
In order to get the Section 24(a) deduction on rental income, the most important criteria is that the property must be self-owned. Apart from that, additional factors to consider are:
- Self-occupied property is not eligible only let-out property is considered
- For multiple house properties, Section 24(a) can be claimed for all properties other than 1 self-occupied property. For tax purposes all properties other than self-occupied property are considered to be source of rental income whether let-out or vacant
No maximum limit specified under Section 24(a), however, tax benefit is fixed to 30% of actual rent received or annual value as per Section 23 of Income Tax Act.
Eligibility Criteria for Section 24(b) Housing Loan Interest Deduction
To receive the tax deduction of up to ₹2 lakh annually under Section 24(b) of the Income Tax Act, the taxpayer must meet the below-given eligibility criteria:
- You should have taken a home loan on or after 1 April 1999. This loan will only get you tax benefits under Section 24 if it has been taken to construct or purchase a house.
- The property over which the loan was taken should have been built or owned within five years from the financial year it was borrowed.
- You should possess an interest certificate showing the interest amount that is payable against the borrowed amount.
Section 24 Deduction Limits as per Income Tax Act
As per current Section 24 rules, there is no maximum amount specified for annual deduction u/s 24(a). It is a flat deduction of 30% on the rental income received during the financial year.
On the other hand, a maximum tax benefit of up to ₹2 lakh annually is available for tax deductions under Section 24 (b) of the Income Tax Act. The actual amount that can be claimed however depends on the annual home loan interest repaid by the property owner.
Home Loan Tax Deductions Beyond Section 24
In addition to Section 24 of the Income Tax Act, home loan benefits of up to ₹150,000 annually can be claimed for interest repayments under Section 80EEA. If you meet the conditions of both sections, you can claim tax benefits of up to ₹3.5 lakh.
Let us look at the conditions one needs to meet for 80EEA to apply:
- The housing property should be your first home for interest on home loan deduction to apply.
- The property shouldn't cost more than ₹45 lakh i.e. qualifies for affordable housing.
- Loan should be sanctioned between 1st April 2019 to 31st Mar 2022
- Income tax rebate on home loans only applies to interest accrued.
These interest repayment benefits are in addition to the Section 80C investment and deduction benefits up to the annual limit of Rs. 1.5 lakh that can be availed for repayment of the principal component of a home loan.
Frequently Asked Questions
Q. Can one claim tax deductions under Section 24 and Section 80EEA together in one financial year?
A. Yes, you can claim a tax rebate on a home loan under both sections in one financial year. While Section 24 offers a deduction of up to ₹2 lakh, 80EEA provides an additional deduction of up to ₹1.5 lakh. However, the actual amount that can be claimed depends on the total interest repaid. These deductions can be claimed in addition to all other deductions under key Sections like Section 80C, Section 80D, Section 80E, etc.
Q. Can I claim tax benefits under Section 24 of the Income Tax Act even if I have missed an EMI?
A. Yes, you can request a tax deduction despite missing the EMI. This is because the section provides tax benefits on interest payable and even after missing an EMI, the other payments made would have featured an interest component.
Q. Is interest on home loans taken from relatives or friends eligible for Section 24 deductions?
A. When it comes to interest repayment on home loans, all interest accrued over principal borrowed from anybody for construction or purchase of housing property is eligible for tax deductions. However, do ensure that they provide you with an interest certificate for the repayment for each financial year.
Q. If I jointly own a housing property with my spouse, can I claim tax deductions?
A. You can only claim tax deductions if you are both co-owner and co-borrower in case of joint ownership. Your name must be on the loan book to request tax benefits under Section 24 of the Income Tax Act.
Sources:
https://economictimes.indiatimes.com/six-things-about-home-loan-tax-incentives-you-didnt-know/tomorrowmakersshow/69425560.cms
https://scripbox.com/tax/section-24-of-income-tax-act/
https://economictimes.indiatimes.com/investments-markets/tax-deductions-other-than-sec-80c-and-80d/home-loan-processing-fee-and-other-charges/slideshow/48129808.cms
https://www.livemint.com/money/ask-mint-money/deduction-for-interest-paid-on-money-borrowed-from-friends-and-relatives-11635052911242.html
https://economictimes.indiatimes.com/six-things-about-home-loan-tax-incentives-you-didnt-know/tomorrowmakersshow/69425560.cms
ARN No: Nov22/Bg/28A