Section 24b of the Income Tax Act: Deductions From House Property Income
For the majority of us, owning a home is one of our greatest desires. However, it has become more and more difficult for people to afford them due to the growing costs of homes in Tier-II cities and even in urban areas. In order to provide relief through several tax breaks for purchasing a home and to incentivise real estate investors, the government has created a number of crucial benefits under Section 24b of the Income Tax Act 1961. Every provision under section 24b that can assist you in reducing your tax liability as a homeowner is covered in this article. Continue reading.
Table of content
Income from House Property: An Overview
You must understand what income from house property means in order to comprehend Section 24 of the Income Tax Act. Under the category "Income from House Property," there are three different forms of income that are subject to taxation.
Rent is the money received by renting out a property.
A self-occupied property's yearly value.
The yearly worth of a property that is marked as "deemed to be let out" (if you own more than two residential properties). Section 24a and Section 24b are the two main subsections of Section 24. Different facets of owning and leasing a residential property are covered in each section. We will now explain Section 24b in detail.
What is Section 24b of the Income Tax Act?
Deductions for loan interest are allowed under Section 24b. You can deduct interest from a personal or housing loan because there are no restrictions on the type of loan. The loan's use is the sole requirement. The funds must be used for home renovations or repairs, or for the purchase or construction of a new residence.
Eligibility Criteria for Section 24b
You must meet the following requirements in order to be eligible for an income tax deduction under Section 24b:
The loan must have been taken out on or after April 1, 1999.
You should have built or purchased a new house using the financing.
You have five years from the end of the fiscal year in which you took out the loan to finish the construction project or acquisition procedures.
An interest certificate attesting to the amount of interest due on the loan must be in your possession. According to Section 24b of the Income Tax Act, an individual may deduct up to Rs. 2,00,000. Both rented and self-occupied homes are subject to the cap. In the aforementioned circumstances, the Rs. 2,00,000 upper limit drops to Rs. 30,000.
Tax Deductions under Section 24b
Under Section 24b of the Income Tax Act of 1961, there are three primary types of deductions, which are as follows:
Standard Deductions: This enables your Net Annual Value to be reduced by 30%. Gross annual value less municipal taxes, such as sewerage and property taxes, is the net annual value, where the higher of the actual rent collected or the predicted rent is the gross annual value. Naturally, the standard deduction and the Net Annual Value of a self-occupied home will both be zero.
Housing Loan Interest Deduction Section 24b: This permits a deduction of up to Rs. 2 lakh on the interest component of a home loan for a fiscal year. The property must be purchased, built, repaired, renewed, or rebuilt using the loan funds. Within five years of the loan's issuance, the property must be purchased. Brokerages and commissions paid to agents or middlemen are not eligible for the deduction. Only unoccupied or self-occupied properties are eligible for the deduction. The full amount of interest is deductible for rental properties, with no upper limit.
Municipal Deduction: To find the property's Net Annual Value, one must pay the government an annual municipal tax, which is deducted from the Gross Annual Value. Homeowners can claim a deduction for municipal taxes paid in a certain fiscal year if they have already paid them.
Benefits of Section 24b for Home Loan Borrowers
For those looking for tax benefits on the interest on their house loans, Section 24B provides a number of perks:
Increased Tax Deduction: Under Section 24B or other relevant sections (such as Section 24), you can now claim the full amount of your home loan interest as a deduction rather than just the flat 5% TDS deduction. Lowering your taxable income and possibly your tax burden may result in a larger overall tax advantage.
Simplified Tax Filing: Your tax filing procedure is made simpler when there is no TDS withheld at the source. All you have to do is claim your deductions under the appropriate sections and declare the total amount of interest paid on your home loan for the year.
Understanding the Concept of Pre-Construction Interest
Taking out a home loan for building or purchasing a home has the advantage of pre-construction interest. Before asserting this interest, you should keep in mind two important points:
The pre-construction and interest on housing loans that can be claimed for a given year cannot exceed Rs 2 lakhs, and it cannot be claimed for a loan taken out for home repairs or reconstruction.
Additionally, it would be great if you kept in mind that interest can be paid in five equal installments beginning the year the house is bought or the construction is finished.
For example, a person can claim a deduction equal to one-fifth of the interest paid up until March 31, 2022, when filing tax returns for FY 2022–2023 if the construction of his home is finished by September 15, 2022 (FY 2022-23).
Claiming Deductions under Section 24b
Selecting the most tax-efficient deduction section for your particular home loan and financial circumstances is essential, even though Section 24B makes it easier to claim deductions for home loan interest. The pertinent sections are broken down as follows:
Section 24: Up to a specific amount, this section provides deductions for a number of costs associated with home ownership, including interest on home loans. Section 24 allows you to claim deductions for two segments. For self-occupied residences, you are eligible to deduct up to Rs. 2 lakhs in interest paid annually from your home loan. The deduction limit is Rs. 3 lakhs for first-time homebuyers on loans up to Rs. 45 lakhs that were approved after April 1, 2019. Under Section 24, you can also deduct the standard deduction, which is a set proportion of your total rental revenue, and any local taxes you have paid.
Section 80C: Another common area for claiming tax deductions is Section 80C. According to Section 80C, you are eligible to deduct the principal amount of your house loan, up to a maximum of Rs. 1.5 lakhs annually. It should be noted, though, that this deduction is for the principal portion of the loan repayment rather than the interest paid.
Optimising your deductions might drastically lower your tax obligation if you are in a higher tax band. Examine each section's possible tax benefits carefully in light of your income and tax bracket. It may not be the most cost-effective course of action to claim the principal repayment under this section if you are also taking advantage of Section 80C deductions for other investments, such as PPF or ULIPs.
Conclusion
Real estate investors are eligible for several tax incentives under Section 24b of the Income Tax Act. The standard deduction for residential property, the municipal tax deduction, and the interest deduction on home loans are all available to you. Regardless of whether you took out a house loan to build or purchase a new home or to repair or renovate an existing one, the terms of Section 24b apply to interest on home loans. According to this provision, the maximum interest deduction is Rs. 2,00,000.
FAQ
Q1. What is the impact of Section 24B on a self-occupied house?
Section 24b allows you to deduct up to Rs 2 lakh in interest paid on your house loan each year for self-occupied properties. Both self-occupied residences are subject to the combined Rs 2 lakh cap.
Q2. What is the maximum Section 24B deduction limit?
A maximum deduction of Rs. 2,00,000 can be claimed for loan interest. Both rented and self-occupied dwelling properties qualify for this deduction. Benefits are available to taxpayers on two properties that are self-occupied as of AY 2020–2021.
Q3. Is there any income limit for claiming a home loan interest deduction?
The deduction for home loan interest under section 24(b) does not have an income limit. This deduction is available to anyone who has taken out a house loan.
Q4. Can I claim tax deductions under Section 24 and Section 80D during the same financial year?
In a single fiscal year, you are able to claim tax deductions under both sections. The interest on a loan taken out to purchase, build, or remodel an existing home can be written off by taxpayers under Section 24. The highest amount that can be deducted is Rs. 2,00,000. People can claim health insurance tax benefits on the premiums they pay for a health insurance plan under Section 80D. The policyholder's age determines the maximum deduction limit, which is Rs. 1,00,000. These deductions are available for plans you purchase for your parents, spouse, kids, or yourself.
Q5. What is the difference between Section 24b and Section 80EEE?
You can deduct up to Rs. 2 lakh from the interest paid on your home loan if you own a self-occupied property under Section 24b. You can write off the whole amount of interest on a rental property. However, an extra Rs. 50,000 deduction is offered by Section 80EE. However, this deduction is only accessible after the Rs. 2 lakh cap under Section 24b has been reached. In other words, after you have used up the maximum of Rs. 2 lakh under Section 24b, you are eligible to claim the additional Rs. 50,000 deduction under Section 80EE.
Q6. Can I claim both HRA and Section 24b?
You must fulfil the requirements outlined in Sections 10(13A), 80C, and 24(b) in order to be eligible for both the House Rent Allowance (HRA) and tax benefits for a home loan. You are eligible to get the HRA benefit if you pay rent for a home you do not own. Claiming HRA and receiving tax benefits for a home loan are not restricted.
Q7. Can tax deductions be claimed for co-ownership under Section 24b?
If certain conditions are met, you and the co-owner of a home may be eligible for annual tax savings of up to Rs. 2 lakh. This deduction is applied to the interest component of your home loan until the loan is repaid. However, remember that you and the co-owner must live in the house to be eligible for this tax benefit.
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