Section 24 of Income Tax Act, 1961, is an important rule for anyone who owns a house or property in India. It allows you to reduce the tax you pay on income from your property by claiming certain deductions. These deductions can make owning a home more affordable by lowering your taxable income. This section applies to both homes you live in (self-occupied) and homes you rent out (let-out). Below, we’ll explain Section 24 in a clear and detailed way, covering what it is, what deductions you can claim, who can claim them, and how they work under different situations.
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What is Section 24 of Income Tax Act, 1961?
Section 24 is a part of the Income Tax Act, 1961, that helps property owners reduce the taxes they pay on income from their house property. “Income from house property” refers to money you earn from a house, like rent from a tenant, or even the notional (imaginary) rent for a house you live in yourself. The section allows you to deduct specific expenses, such as interest on a home loan or taxes paid to the local government, from this income. This lowers the amount of income that is taxed, saving you money.
The rules under Section 24 depend on whether your property is self-occupied (you live in it) or let-out (rented out). They also vary depending on whether you choose the old tax regime or the new tax regime introduced in 2020. Understanding these rules can help you plan your taxes better and make the most of the benefits available.
Key Deductions Under Section 24 of Income Tax Act, 1961
Section 24 offers three main types of deductions to reduce your taxable income from house property. These are designed to make it easier for homeowners to manage their tax burden. Here’s a simple breakdown of each:
1. Standard Deduction
You can deduct 30% of the Net Annual Value (NAV) of your property, no matter how much you actually spend on things like repairs, maintenance or insurance.
The NAV is the income from your property after subtracting municipal taxes (explained below). For example, if your property’s NAV is ₹10,00,000, you can deduct ₹3,00,000 (30%) from it. This reduces the amount of income you’ll pay tax on.
This deduction is automatic and doesn’t require you to prove actual expenses, making it simple and straightforward.
2. Municipal Taxes
If you, as the property owner, pay municipal taxes (like property tax or water tax) to the local government, you can deduct those taxes from the Gross Annual Value (GAV) of your property. The GAV is the total income from your property, like the rent you receive or the rent it could fetch.
You can only claim this deduction for taxes you paid during the financial year. If the tenant pays these taxes, you cannot claim the deduction.
For example: If your property’s GAV is ₹12,00,000 and you paid ₹2,00,000 in municipal taxes, the NAV becomes ₹10,00,000 (₹12,00,000 - ₹2,00,000). Then, you can apply the 30% standard deduction on this NAV.
3. Interest on Home Loan
If you took a loan to buy, build, repair, or renovate your property, you can deduct the interest you pay on that loan from your property income. This is one of the biggest tax benefits for homeowners. The rules depend on whether the property is self-occupied or let-out and which tax regime you’re using:
Self-Occupied Property (Old Tax Regime):
If you took a loan on or after April 1, 1999, for buying or building a house, you can deduct up to ₹2,00,000 per year for the interest you pay.
If the loan was taken before April 1, 1999, the deduction is limited to ₹30,000.
For loans used for repairs or renovations, the deduction is capped at ₹30,000, and the house must be completed within 5 years from the end of the financial year in which the loan was taken.
If you took a loan before the house was built (pre-construction interest), you can claim that interest in 5 equal parts starting from the year the construction is completed. However, the total deduction for a self-occupied property, including pre-construction interest, cannot exceed ₹2,00,000.
Let-Out Property (Both Tax Regimes): For properties you rent out, there’s no limit on the interest deduction. You can claim the entire interest amount you pay on the loan, which is great if you have a large loan for a rental property.
New Tax Regime:
In the new tax regime (introduced in 2020), you cannot claim any interest deduction for a self-occupied property. This might make the old tax regime more attractive if you have a home loan.
For let-out properties, the unlimited interest deduction is still available, even in the new tax regime.
Read Section 147 of Income Tax Act, 1961.
Additional Tax Benefits Related to Section 24
Apart from the deductions under Section 24, you can claim other tax benefits under different sections of the Income Tax Act to save more on taxes. These are especially useful for people with home loans:
Section 80EE: This offers an extra deduction of up to ₹50,000 for interest on home loans taken between April 1, 2016, and March 31, 2017. It’s for first-time homebuyers and applies to loans for properties with specific value and loan amount limits. This deduction is over and above the ₹2,00,000 limit under Section 24 (old tax regime only).
Section 80EEA: Section80EEA provides an additional deduction of up to ₹1,50,000 for interest on home loans taken between April 1, 2019, and March 31, 2022, for affordable housing. It’s also above the ₹2,00,000 limit under Section 24 and targets properties with lower values to encourage affordable homeownership (old tax regime only).
Section 80C (Principal Repayment): While not part of Section 24, you can claim a deduction of up to ₹1,50,000 under Section 80C for the principal amount you repay on your home loan, as well as for stamp duty and registration charges. This deduction is shared with other investments like life insurance or fixed deposits, and it’s only available in the old tax regime.
Who Can Claim Deductions Under Section 24?
To claim the deductions under Section 24 of Income Tax Act, you need to meet certain conditions:
Eligibility: You must own a residential property, whether you live in it (self-occupied) or rent it out (let-out). This includes owning multiple properties, but there are special rules for additional properties (explained below).
Conditions for Interest Deduction: The loan must be used for buying, building, repairing, renovating, or reconstructing the property. You need to provide proof of interest payments, like a loan statement from your bank, to claim the deduction.
Limitations: For self-occupied properties, the interest deduction is capped at ₹2,00,000 in the old tax regime, ensuring fairness in tax benefits and for let-out properties, there’s no limit on the interest deduction, reflecting the fact that these properties generate rental income.
Summary
Section 24 of Income Tax Act, 1961, is a valuable tool for property owners to reduce their tax burden. It offers a 30% standard deduction on the Net Annual Value, deductions for municipal taxes paid, and significant relief for interest on home loans. For self-occupied properties, you can deduct up to ₹2,00,000 in interest under the old tax regime, but this benefit isn’t available in the new regime. For let-out properties, there’s no limit on interest deductions in either regime, making it great for rental property owners. Additional benefits under Sections 80EE, 80EEA, and 80C can further boost your savings.
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Section 24 of Income Tax Act, 1961: FAQs
Q1. What is the deduction under Section 24 of Income Tax Act 1961?
Section 24 allows deduction of interest paid on a home loan from property income for self-occupied or let-out properties.
Q2. What are the deductions allowed in U/S 24?
Interest on home loan: Up to ₹2,00,000 for self-occupied property (old regime); no limit for let-out property.
Standard deduction: 30% of net annual value for let-out property.
Q3. What is Section 24 income tax example?
For a self-occupied property with a home loan, if you pay ₹2,50,000 interest annually, you can deduct ₹2,00,000 under Section 24 (old regime).
Q4. What is Article 24 of Income Tax Act?
There is no "Article 24" in the Income Tax Act 1961; it’s referred to as Section 24, dealing with deductions from house property income.
Q5. Can I claim both Section 24 and 80EE?
Yes, you can claim both if eligible. Section 24 allows up to ₹2,00,000 interest deduction, and Section 80EE allows an additional ₹50,000 for first-time homebuyers (subject to conditions).
