Tax deductions available on house property income

Section 24 of the Income Tax Act, 1961

Buying a home is a need for some people, while many others consider it as an asset or investment. As you know, you can avail tax exemptions on specific investments and expenditures. Housing property is one among them. Section 24 talks about exemptions on the interests on home loans. In this blog, let us analyse Section 24 in detail.

How is income from house property determined?

Rental income generated from house property is chargeable under the head “Income from House Property” in the following cases:

• If you are letting out your house property.
• If you own multiple houses, the Net Annual Value of the properties, excluding two houses, is added to your income

The income under the head “House Property” is taxable after deductions made under Section 24. However, if you own two houses and you do not own any other property, the income from house property is NIL.

There are two permissible deductions under this section:

Standard deduction

As per standard deduction, a sum equal to 30% of the Net Annual Value of the property is exempted from tax. Any taxpayer can avail this exemption on income from house property.

Deductions on interest incurred against home loans

This deduction applies to the interest payable on the borrowed capital for the house property. You can avail exemption on interest on home loans taken for acquisition, construction, repair, renewal or reconstruction of the property.

The following conditions apply to avail deduction on interest of home loans under Section 24:

• If you or your family resides in the property for which the loan has been taken, you can claim a deduction up to Rs 2 lakh on the interest.
• If you have rented out the property or deemed to rent out the property, the whole interest amount is liable for a tax deduction.

To claim deductions under Section 24, you should have the interest certificate of the loan you have availed.

Points to remember

• The maximum deduction limit on interest is Rs 30,000 if the purchase or construction of the property is not completed within five years, starting from the financial year in which the loan was taken.
• You can claim a deduction for pre-construction loans for buying or constructing a property. You can avail deduction of such interest in five equal instalments from the year in which such construction is completed. The maximum limit for deduction on interest of pre-construction loan is Rs 2 lakh.

Note that the tax liability of income from house property is on the person who receives the financial benefit. It may or may not be the registered property owner.