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Apply OnlineWhat is Section 24 of the Income Tax Act?

- Mar 21, 2019
- VIEWS: 1975
Becoming a home owner comes with its own share of benefits. The main benefit of becoming a home owner is that you have lifelong financial security. The value of the property also continues to increase with every passing year, which means the return of investment is always on an upward trajectory. If you have purchased the home by taking on a home loan, you can also avail several tax deductions on loan repayment; whether it is on the principal loan amount or the interest component. In this article, we shall look at the tax deductions under Section 24 of Income Tax Act.
Section 24 of the IT Act of 1961
Section 24 of the IT Act refers to the income accrued from house property. This section specifically relates to the exemptions you can get on the interest component of the home loan you are repaying. Purchasing a home is regarded as a great investment that also facilitates tax savings. The Government of India offers tax deductions on various kinds of investments including the repayment of a home loan since purchasing a property is considered an investment.
Section 24 of Income Tax Act of 1961 is related to the deductions from income from house or residential property. The section sheds light on the various kinds of deductions that are permitted from the income earned by an individual through his residential property. Income from a house or residential property may be earned in the following cases:
The residential property is rented by the home owner; then the rent earned is considered as income.
In case an individual owns more than one house, except for the one in which he is residing; then the remaining properties are considered as income from residential properties.
Deductions under Section 24
Let’s take a look at the applicable deductions under Section 24 of the IT Act of 1961. It must be noted that taxable income under this specific section i.e. income from house/residential property is calculated after the below deductions are made:
Standard deduction: A standard deduction is an exemption that all tax payers can benefit from. Under the standard deduction, the tax payer is permitted a deduction of a sum that equals 30% of the net annual value of the property. The 30% deduction is permitted even if the tax payer’s actual expenditure on the property is high or low. The deduction is irrespective of the expenditure incurred on repairs, insurance, electricity and water supply and so on. In case of self-occupied properties, there is no annual income accrued. This makes the standard deduction zero. As such, the standard deduction does not apply in cases of self-occupied properties.
Deductions on the interest component of home loans: Most tax payers typically take on a home loan to purchase a property. In such cases, they can receive deductions on the interest component of the home loan. The tax payer receives exemptions on the home loan interest he is paying on the principal loan amount. You can claim a maximum annual deduction of Rs. 200,000 on the interest component of your home loan under Section 24 of Income Tax Act. This deduction can be claimed if
- You and your family are residing in the residential property
- The property is rented out to another party while you are living in a rented accommodation in another city.
- The property is vacant or unoccupied.
Terms and conditions to claim deductions under Section 24
To claim the tax rebate of Rs.200,000, the tax payer needs to fulfil certain basic terms and conditions, failing which his deduction on interest is reduced to just Rs.30,000. These conditions are as under:
- The home loan is taken for purchasing or constructing a property.
- The purchase or construction of the property is completed within a period of 5 years, from the end of the financial year in which you take the loan.
- The home loan is taken on or after April 1, 1999.
So if you are repaying a home loan, it is important for you to be aware of the various kinds of tax deductions you can avail. Whether it is Section 80C, 80EE or Section 24 of Income Tax Act, you must make the most of each of these sections to facilitate savings while you also reap the benefit and security of being a home owner.
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