Owning a home is one. of the most significant milestones for many individuals. Beyond providing a place to live, it also serves as an appreciating asset. However, purchasing a home is a substantial financial commitment, especially with rising real estate prices. For most, taking a home loan becomes the best option. Not only does it provide the necessary funds, but it also offers certain tax benefits. One of these crucial benefits is under Section 24 of the Income Tax Act, which allows tax deductions on the interest paid on home loans.
This tax benefit has enabled countless individuals to dream of owning their own homes. Let’s delve deeper into Section 24 to understand how it supports your journey toward homeownership.
Section 24 of the Income Tax Act allows homeowners to claim tax deductions on the interest paid on home loans. It is also referred to as a “Deduction on Income from House Property.”
This tax benefit helps ease the financial burden of home loans, making housing more accessible to a wide range of economic backgrounds.
Homeowners can claim a 30% standard deduction on the net annual rental income for rented properties. This deduction helps reduce taxable income and is a key benefit for those who rent out their property. However, it does not apply to self-occupied properties.
Suppose Ayan rents out his property for Rs 10,000 per month, generating Rs 1.2 lakh per year. Under Section 24(a), Ayan can claim 30% of his annual rental income, i.e., Rs 36,000, as a standard deduction.
For self-occupied properties, Section 24(b) allows a deduction of up to Rs 2 lakh on the interest paid for a home loan. For rented-out properties, there is no limit to the amount of interest deduction.
This provision applies to home loans taken for:
If the loan is taken for brokerage or commission expenses, it is not eligible for tax benefits under Section 24(b).
Homeowners can claim pre-construction interest under Section 24. This interest is deductible in five equal installments once the property’s construction is completed. The maximum deduction for self-occupied properties remains Rs 2 lakh.
You may also want to know GST State Code List and Jurisdiction
To claim tax benefits under Section 24(b), the following criteria must be met:
For loans taken before April 1, 1999, or for reconstruction/repair purposes, homeowners can claim deductions of up to Rs 30,000 annually.
Income from house property refers to the income that is calculated on a house owned by the taxpayer. The annual income is derived from either self-occupied or rented properties. Here’s how the income is calculated:
Let’s understand how to calculate income from house property under Section 24 with the following example.
Rohini borrowed Rs 6 lakh as a home loan and paid an annual interest of Rs 2 lakh. During the construction phase, she paid interest of Rs 1.5 lakh. She has put the property on rent and receives a monthly rental income of Rs 30,000. Additionally, she pays a municipal tax of Rs 15,000 for this property.
With this information, let’s calculate Rohini’s income based on two factors. They are-
Income from housing property = (Net Annual Value – Standard deduction) – (home loan interest + pre-construction interest)
| Particulars | Self-occupied property (Rs) | Rental Income (Rs) |
| Gross value | Nil | 3,60,000* |
| Annual municipal taxes | – | 15,000 |
| Net annual value (NAV) | Nil | 3,45,000 |
| 30% Deduction under section 24(a) Interest on loan under section 24(b) | – -2,00,000 | -1,03,500 -2,00,000 |
| Pre-construction interest under section 24(b) | -30,000* | -30,000* |
| Income/ Loss from house property | -2,00,000* | 11,500 |
*Gross Value for rented income = Rs 30,000*12 = Rs 3,60,000
*Pre-construction interest = It will be divided into five equal installments, i.e., Rs 1.5 lakh divided by 5 = Rs 30,000
*Loss from self-occupied property is restricted to Rs 2 lakh as the maximum deduction allowed in this case is Rs 2 lakh.
You may also want to know Section 194IC of Income Tax Act
Section 24 of the Income Tax Act provides significant tax benefits to homeowners by allowing deductions on home loan interest. It not only incentivizes homeownership but also reduces the financial burden of loan repayment. Whether you own a self-occupied or rented property, understanding the benefits under Section can help you make the most of your tax-saving opportunities.
For self-occupied properties, the maximum deduction for home loan interest under Section 24(b) is Rs 2 lakh. For rented properties, there is no upper limit.
Yes, pre-construction interest can be claimed in five equal installments after the property’s construction is complete. However, for self-occupied properties, the maximum deduction, including pre-construction interest, is limited to Rs 2 lakh.
Yes, loans taken for reconstructing, renewing, or repairing a house qualify for tax benefits under Section 24(b), but the maximum deduction is Rs 30,000 annually.
If you rent out your property, you can claim deductions on the entire home loan interest paid and a 30% standard deduction on the net rental income.
If your home loan was taken before April 1, 1999, the maximum interest deduction you can claim is Rs 30,000.
Get the link to download the App
Download Jainam Mobile App
