For many people in India, buying a new home is one of their biggest life goals. However, most people find buying or constructing a new home unaffordable due to the high prices of the properties. But, thanks to the various financial institutions that offer home loans, you can now get the desired funds to purchase your dream house and repay the amount in convenient EMIs (equated monthly instalments).
Apart from the financial institutions, the Government also offers many tax benefits to homebuyers under different sections of the Indian Income Tax Act of 1969. In this write-up, we discuss one such deduction under Section 24 of the IT Act.
What is Section 24 of the Income Tax Act?
Section 24 of the IT Act is related to the deduction from income from house property. It allows you to get tax deductions on the interest amount you repay on the home loan to the lender. The maximum deduction you can get under this section is Rs. 2 lakhs in a financial year. Thus, the section lets you reduce your overall annual tax liabilities. As per Section 24 of the IT Act, you need not necessarily occupy or live in that house to enjoy the tax benefit.
The income tax deductions on home loan interest repayment are just one aspect of Section 24 of the IT Act. The section also deals with income from house property, especially if you are renting a home. The rent you get is considered an income. If you own more than one house, the net value of all the residences is regarded as an income.
Income from House Property Under Section 24 of the Income Tax Act
As per Section 24 of the IT Act, there are scenarios under which income from house property can occur, such as –
- The income earned by way of rent
- The annual value of the property, which is treated as ‘deemed to be let out’ for tax purposes
- The annual of the self-occupied property
If you earn any income from your house property, you can avail of the standard deduction under Section 24 of the IT Act and reduce your tax outgo.
As per Section 24, you can avail of a standard deduction of 30% on the Net Annual Value of the property. The best part of this deduction is that you can claim it even if the definitive expenditure is higher or lower.
Important things to consider while calculating income from house property
Under Section 24 of the Income Tax Act, the taxes on house property are calculated on the net annual value of the property, and the deduction is calculated on that value. While assessing the actual tax payable, you can use the income tax calculator. It is an easy-to-use tool that allows you to compute the actual tax payable faster and more accurately. It completely eliminates the risk of error associated with manual calculations.
If the house is vacant for one or more than one year and you reside in a different location due to employment, and you continue to pay the municipal taxes on the said property, then you can offset this amount against income from other sources in the same year. If you don’t claim the deduction in a particular financial year, it can be carried forward for up to eight years.
Now that you know the tax implications under Section 24 of the IT Act, as a homeowner, do your due diligence, and enjoy the benefits available to you.