Section 24 of Income Tax Act: Tax Benefits from House Property Income
Oct 19, 2023Investments

Section 24 of Income Tax Act: Tax Benefits from House Property Income

by Godrej Properties Limited

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Owning a property in India is a dream for many, and it comes with its share of financial considerations, including tax implications. Section 24(B) of the Income Tax Act 1961 offers deductions on house property income to provide relief to homeowners. This guide will break down Sec. 24(B) to help you comprehend the deductions, including pre-construction interest, and how they can affect your tax liability.
 

Section 24 of Income Tax Act: An Overview

Under Section 24 of the Income Tax Act, income from house property is categorised into two main types:
 

  • Rental Income: This includes income earned from renting out a property.
  • Annual Value of Deemed Property: If you own more than two house properties, any additional property is 'deemed' to be let out for income tax purposes.

For self-occupied properties, the annual value is Nil, making the income zero or even negative if you pay home loan interest. If your property is let out, the rent received constitutes your Gross Annual Value. A reasonable rent for a similar place is taken as the Gross Annual Value for deemed let-out properties.
 

Deductions Under House Property Income

Several deductions can help reduce your taxable house property income:
 

  • Municipal Tax: If the owner bears it, deduct the annual municipal tax paid during the financial year.
  • Standard Deduction: Claim a standard deduction of 30% of the Net Annual Value, irrespective of your actual expenditure.
  • Interest on Home Loan: Homeowners can claim a deduction of up to Rs. 2 lakh on home loan interest if they or their family reside in the property. For rented properties, the entire interest is deductible. However, the deduction is limited to Rs. 30,000 if specific conditions are not met.

Pre-Construction Interest Deduction Under Section 24

Pre-construction interest can be deducted when you've taken a loan for property purchase or construction (not repairs or reconstruction). The total pre-construction and housing loan interest claimable in a year should not exceed Rs. 2 lakh. This interest can be claimed in five equal instalments starting from the property's purchase or construction year.
 

Summing Up

Understanding Section 24(B) of the Income Tax Act is crucial for homeowners to maximize their deductions and minimize their tax liability. By taking advantage of deductions on municipal taxes, standard deductions, and home loan interest, you can effectively manage your house property income for tax purposes.


Frequently asked questions

Q: What is the significance of Section 24(B) in the Income Tax Act for homeowners?

A: Section 24(B) of the Income Tax Act offers deductions on house property income, including home loan interest, municipal taxes, and the standard deduction.
 

Q: How can I set off the loss from house property (Section 24) against other income?

A: If you have a loss from house property (Section 24), you can set it off against other income for the current year. Any remaining loss can be carried forward for up to 8 years but can only be set off against future house property income.

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