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Section 24 of the Income Tax Act 1961

A dream house is expensive and hence, most people end up taking a home loan. To help you achieve your dream of buying a new home, the government has introduced Section 24 of the Income Tax Act, 1961.

As per Section 24, income from House Property includes:

  1. Rental Income
  2. In case you own more than two houses, the annual value of a property which is ‘deemed’ to be let out for income tax purposes.
  3. The annual value of the property which is self-occupied, which is Nil

An individual can make certain deduction from the Net Annual Value of your property. The Net Annual Value does not include municipal taxes. For a self-occupied house property, the Gross Annual Value is Nil.

Deductions under Section 24

Standard Deduction

The standard deduction is 30% of the Net Annual Value. This is applicable, irrespective (higher or lower) of the expenditure you make on the actual property. The standard deduction is Nil on a self-occupied house property.

Deduction of Interest on Home Loan for the Property

You can claim a deduction of up to Rs. 2 lakhs (Rs. 1,50,000 if you are filing returns for FY 2013-14) on your home loan interest for a self-occupied property. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.

Your deduction on interest is limited to Rs. 30,000. Conditions to claim Rs. 2 lakhs rebate/claiming Interest on Home Loan are as follows:

  1. The home loan must be for the purchase and construction of a property.
  2. The loan must be taken on or after 1 April, 1999.
  3. The purchase or construction must be completed within 5 years from the end of the financial year in which the loan was taken.
  4. There is interest certificate available for the interest payable on the loan.
  5. The loan is borrowed before 1st April, 1999 for purchase, construction, repairs or reconstruction.
  6. The loan is borrowed on or after 1st April, 1999 for repairs, renovation or reconstruction.

Computation of Income under House Property

The following example will help you understand the computation of Income under House Property:

Note: The property is either self-occupied or rented out.

Conditions:

Following are the conditions for this example-

  1. Annual Loan Amount – Rs. 4 lakhs
  2. Annual Interest Component – Rs. 2 lakhs
  3. Pre-construction Interest Payable – Rs. 3 lakhs
  4. Rent Earned – Rs. 7,000 per month
  5. Municipal Taxes on the Rental Home – Rs. 3,000
Property TypeSelf-OccupiedRental
Gross annual Value (Rent paid- 7000*12)NIL84,000
Less: Municipal Taxes or Taxes paid to local authoritiesNA3,000
Net Annual Value(NAV)Nil81,000
Less: Standard Deduction(30% of NAV)NA24,300
Less: Interest on Housing Loan200,000200,000
Less: Pre-construction interest (1/5th of 3 Lakhs)60,00060,000
Income from House Property(260,000)(203,300)
Overall loss restricted to(200,000)(200,000)

The maximum loss set off allowed in a financial year is limited to Rs. 2 lakhs. The remaining loss is carried forward to the future financial years, i.e. 8 years in total.

FAQs on Section 24

What is pre-construction interest?

This is allowed when you have taken a loan for purchase or construction of a property. The deduction is allowed in 5 equal installments starting from the year in which the house is purchased or the construction is completed.

What is the limit on pre-construction interest?

The total amount of pre-construction interest/interest on housing loan (for the purpose of claim in a single financial year) should not exceed Rs. 2 lakhs in any case.

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