ection 24

Section 24 of the Income Tax Act deals with interest that an individual pays on home
or property loans. This particular section is titled 'Deductions from income from
house property'. The deductions available are loan interest and standard deduction.

There are several sections in the Income Tax Act that allow you get tax
exemptions on specific investments and expenditures. One of the investments that is
constantly stressed in the Act is purchase or residential property. The government
recognises that housing is one of the most important need as well as asset, and
many investments towards your first home are exempted from tax payment.

An important section concerning home loans is Section 24 which allows you to claim
exemptions on the interest you pay on home loans. Another section, Section 80C,
allows you to claim tax benefits on the repayment of the principal amount.

Section 24 is titled as "Deductions from income from house property". 'Income

from house property' is applicable in the following cases:

1. If you are renting out your house(s), then the rent received will be considered
as part of your income;
2. If you have more than 1 house, then the Net Annual Value of the houses,
except the house you are living in, will be considered as your income.

If you own only 1 house and you are living in it, the income from house property will
be considered as NIL. Any income derived from rent and annual value of additional
houses, will be subject to tax after deductions made under Section 24.

Deductions under Section 24

There are 2 types of tax deductions under Section 24 of the Income Tax Act:

1. Standard deduction: This is an exemption allowed to every taxpayer, where

a sum equal to 30% of the net annual value does not come under the tax limit.
This is not applicable if you are occupying the only house you own.
2. Interest on loan: If you have taken a home loan for purchase, construction or
renovation of the house, whatever interest you pay on the principal amount of
the loan is exempted from tax payment. The sub-clauses in this category are:
1. If the loan has been taken for a self-occupied property, then you can claim
exemptions of up to Rs. 2 lakh.
2. If you took a loan for purchase or construction (not renovation) of a property
before actually buying or completing its construction, you can still claim the
interest. You can seek deductions on the interest paid before the construction
or purchase is completed, in 5 equal instalments, from the year in which the
house is bought or the construction is completed.
 3. If the loan is taken for renovation or reconstruction of a house, you cannot
claim tax exemption until the renovation is completed.

To avail this deduction, you need to compute the interest amount you have to pay to
the bank or financial institution that you took the loan from, separate from the
principal repayment. It does not matter whether you have actually paid the amount to
the financier - you can get exemption for the complete annual interest amount.

Exceptions under Section 24

 If the house is not occupied by you, you can claim exemption for the whole
interest amount that you are paying, without any upper limit.
 If the house is not occupied by you because you live in another town due to
your employment or business, and you live in another property or rented
property in the city of your employment, then you can claim tax exemption on
interest payment only up to Rs. 2 lakh.
 There is no deduction for any brokerage or commission for arranging the loan
or tenant.
 You have to buy or complete construction of the house within 3 years of
taking the loan for you to be able to claim maximum deduction on the loan
interest amount. If the construction or purchase is not complete within 3 years,
you will be able to claim only Rs. 30,000 instead of Rs. 2 lakh.
 You must have an interest certificate for the loan that you are taking.

Computation of Income from House Property

Understanding income from house property can be tricky. To make it simple, here
are a few things to keep in mind:

 Only the Net Annual Value of your house(s) is considered for taxation. Net
Annual Value is arrived at when you deduct the municipal taxes paid on the
property from the gross annual value of the house. For example, if you are
receiving Rs. 1.2 lakh as rent annually on a house you have let out, and you
are paying Rs. 40,000 as municipal taxes, then the Net Annual Value of your
house is Rs. 80,000, and you have to pay tax only on this amount.
 If your house(s) is lying vacant for any period during the financial year due to
lack of tenants, you have to consider only the income received as rent and not
compute it against the whole 12 months. For example, if a house yielding Rs.
17,000 as rent is vacant for 4 months of the fiscal year, then the gross value
of the house will be Rs. 1,36,000 (Rs. 17,000 * 8). Tax payable on this income
will be calculated after deducting the municipal tax amount paid and the
standard deduction of 30%.
 If your house(s) is lying vacant and not giving you any income, but you are
paying municipal taxes, you can offset this loss against income from other
sources - such as your salary or rent from any other property - during the
same fiscal. If you are unable to offset the loss in the same year, you can
carry forward this loss for up to 8 years.
Section 80EE allows an additional exemption of Rs. 50,000 if the cost of the house is
less than Rs. 50 lakh and the loan taken is less than Rs. 35 lakh. This provision is
available only from the financial year 2020-21. An interest point to note is that these
tax exemptions are available only to the person in whose name the house and the
loans are. If the person dies and the property and loan liabilities are passed on to the
heir, the inheritor cannot claim any tax benefits. However, if you have taken a joint
loan or own a property jointly with another person, all the parties who are repaying
the loan and own the property can claim individual deductions, because Section 24
applies to each individual and not each property.