Income Tax Act, Section 24: Deductions, Exemptions, Calculation & More

Income Tax Act, Section 24: Deductions, Exemptions, Calculation & More

Are you curious in Section 24 of the Income Tax Act and the deductions it permits?

Find out more about Section 24 of the Income Tax's deductions, exemptions, or terms and limitations. Many people have the ambition of owning a home, but buying a home requires careful planning and a sizable investment. In addition, it is becoming increasingly difficult to purchase a home without financial support due to the growing real estate costs.

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Therefore, the majority of people choose a home loan, although the home loan has a high monthly EMI. Therefore, Section 24 of the Income Tax Act allows the eligible borrower to benefit from tax advantages & deductions on the interest paid toward the home loan in order to assist you in purchasing a property. We will talk about Section 24 of the Income Tax Act, Section 24 deductions, and the prerequisites for home loan interest deductions in this article.

Section

24

of Income Tax Act

Important aspects of Section 24 of the Income Tax Act

Specifications Section 24 of Income Tax Act

Tax deductions allowed under Section 24

Two deductions allowed: - Interest on loan amount - Standard deduction at 30%

Loan amount can be used for - In case of purchase and construction of property to be completed within 5 yrs.

- Under Section 24 of Income tax it can be used for repair, reconstruction, or renewal of the housing property.

Limit on tax deduction - Rs 2 lakh for self-occupied property - No limit for non-self-occupied property

Tax deduction can be claimed In case of reconstruction or renovation the tax deduction under Section 24 of Income tax can be availed after the completion.

What does the Income Tax Act Section 24 mean?

The Income Tax Act contains numerous sections that provide an individual to receive tax exemption on particular purchases and investments. The Income Tax Act frequently emphasizes real estate investing as one of the investment possibilities. Housing is one of India's most important needs, and as a result, many investments made for a first home are excluded from paying taxes.

One significant component of the Income Tax Act pertaining to mortgages is Section 24, which enables a person to request exemptions on the interest on a mortgage. Simply put, Section 24 of the Income Tax Act is concerned with the interest a person pays on a mortgage. Deductions from income from real estate contained under this provision of the Income Tax Act. Standard deductions & loan interest are two of the available deductions.

The following categories are included in "revenue from housing property":



If someone rents a residence, that person will be considered to have an income.



A person's expected income from a house is zero if they own it and reside there.



If a person owns more than one home, the Net Annual Value of all of his housing properties aside from the one where they live will be taken into account when calculating their income.

Keep in mind that after Section 24 of the Income Tax's deductions, both rental income and income from the annual value of additional housing property are taxed.

Deductions available under Section 24 of the Income Tax Act

There are two categories of tax deductions allowed by Section 24 of the Income Tax Act, and they are as follows:

Standard Deduction: The qualifying person may deduct 30% of the Net Annual Value as their standard deduction. Since the annual value of a self-occupied home is zero and there is no standard deduction, this deduction does not apply to selfoccupied homes. The standard deduction is available regardless of the actual costs incurred when purchasing a property for energy, insurance, maintenance, a water system, etc.

Deduction for Interest Paid on Loan: Section 24 of the Income Tax Act allows borrowers who took out house loans for rehabilitation, purchase, or construction to enjoy an income tax deduction. Therefore, any interest paid on the loan's principle amount can be deducted from taxable income if it is used to carry out any of the aforementioned activities.

The sub-clauses in this category are as follows:

If the loan was taken to purchase a self-occupied home, you are eligible to claim a tax exemption of up to Rs 2 lakh.



Even if you took out a loan to pay for construction or a property acquisition but didn't finish it, you can still claim the interest.



You cannot claim tax exemption until the property renovation is complete if the loan was taken out to renovate or rebuild the property.

Exceptions Under Income Tax Section 24

Under this portion of income tax, there are a few special regulations; let's talk about those regulations:



You may deduct all of the interest paid on the house loan from your income taxes if the residential property is not used for your own personal use.



If you rent your home, live in another city or town, and the property is not self-occupied, you may be qualified for a tax exemption of up to Rs 2 lakh on the interest paid on your home loan.



The money paid for any brokerage to find a tenant or for any additional fee paid for finding the loan are not tax deductible.



Another crucial requirement is that you must purchase or finish building your home within three years of receiving a home loan in order to deduct the maximum amount of loan interest.

Terms & Conditions for Home Loan Interest Deduction

There are a precise set of requirements that a taxpayer must follow in order to claim the tax deduction of up to Rs 2 lakh under Section 24 of the Income Tax Act; otherwise, the tax refund on interest will be reduced to just Rs 30,000. The requirements to request the exemption are as follows:



Within five years of the end of the fiscal year in which the loan is taken out, the property must be built or the acquisition made.

 the mortgage obtained to buy or build a home on or after 1 April 1999.



In order to rebuild the existing property or make repairs to the dwelling, the tax borrower applied for the loan on or after April 1, 1999.



The person should possess an interest certificate for the amount of interest that is due on the mortgage.

How Should I Calculate My House Property Income?

It can be challenging at times to comprehend and evaluate the money received from the rental property. Here is an illustration to help you better understand the procedure:

Mr. Ankit obtained a home loan for Rs. 4,00,000 and made annual interest payments of Rs. 2,00,000. He additionally made interest payments of Rs. 1,50,000 while his home was being built. From this property, he earns a monthly rental income of Rs. 30,000 and pays Rs. 10,000 in municipal taxes. Let's estimate his income based on two key considerations:

Self-occupied real estate

Rental housing

The formula to determine the total income from a residential property is as follows:

Net annual value less standard deduction minus (home loan interest plus preconstruction interest) equals income from property.

Particulars

Rented Property

Owned Property

Minus: Municipal Taxes Rs 10,000Gross Annual Value (GAV) (Rs 30,000*12) Rs 3,60,000 -

Minus: Interest paid on under construction (1/5th of Rs 1,00,000)

Rs 30,000 Rs 30,000

Minus: Interest paid on home loan Rs 2,00,000 Rs 2,00,000

NAV (Net Annual Value) Rs 3,50,000Total income from the property Rs. 15,500 Rs 2,30,000

Minus: Standard Deduction (30% of Net Annual Value)

Rs 1,05,000 -

Section 24 of the Income Tax Act: Last Words

Understanding all

deductions, the limitations under Section 24 of the Income Tax Act, and the refund you are eligible for is crucial whether you are considering taking out a home loan or are already repaying one. You can claim tax exemptions under Section 24 of the Income Tax Act, but you must know how to take full use of this provision if you want to save money and feel secure and proud of your home ownership.