Income from house property is one of the five heads of income under the Income Tax Act, 1961. If you own a house or any other property, you may be liable to pay tax on the rental income or deemed rental value of the property. However, the Act allows certain deductions to reduce the taxable income from house property.
In this blog, we will explore the deductions available under Section 24 of the Income Tax Act and how they can help you save tax.
Understanding Section 24: Deductions from Income from House Property
Under Section 24 of the Income Tax Act, two major deductions are allowed while computing taxable income from house property:
1. Standard Deduction – 30% of Annual Value
A standard deduction of 30% of the Net Annual Value (NAV) is available for all let-out properties. This deduction is allowed irrespective of actual expenses incurred on repairs, maintenance, or any other costs related to the property.
Example:
If the annual rental income (Net Annual Value) from a property is ₹5,00,000, the standard deduction would be:
₹5,00,000 × 30% = ₹1,50,000
Important Points:
- This deduction is not applicable to self-occupied properties (as NAV is considered zero).
- No proof of expenses is required to claim this deduction.
2. Deduction on Interest on Home Loan
If you have taken a home loan for purchasing, constructing, repairing, renewing, or reconstructing the property, you can claim a deduction on the interest paid on the borrowed capital under Section 24(b).
The deduction limit depends on whether the property is self-occupied or let-out:
For Self-Occupied Property:
- Limit of ₹2,00,000 per year if:
- The loan is taken for purchase or construction.
- The property is completed within 5 years from the end of the financial year in which the loan was taken.
- If construction is not completed within 5 years, the deduction is restricted to ₹30,000.
For Let-Out Property:
- No upper limit on the deduction of home loan interest. The entire interest paid can be deducted.
- However, the overall loss from house property that can be adjusted against other incomes is restricted to ₹2,00,000 per year. Any excess loss can be carried forward for 8 years to be set off against future income from house property.
Pre-Construction Interest Deduction
Interest paid during the pre-construction period (i.e., before completion of construction) can be claimed in five equal annual installments starting from the year in which the property is completed.
Example:
If you paid ₹1,00,000 as interest during the pre-construction period, you can claim ₹20,000 per year for the next five years, in addition to your regular interest deduction.
Conditions to Claim Interest Deduction
- You must obtain a certificate from the lender (bank or financial institution) specifying the interest amount.
- The loan must be taken for the purpose of purchase, construction, repair, or renovation of the house.
Comparison: Self-Occupied vs Let-Out Property
Deduction | Self-Occupied Property | Let-Out Property |
---|---|---|
Standard Deduction (30% of NAV) | Not Applicable | Applicable |
Interest on Home Loan | Up to ₹2,00,000 | No Limit (subject to ₹2,00,000 set-off limit) |
Pre-Construction Interest | 1/5th of total pre-construction interest per year | 1/5th of total pre-construction interest per year |
Conclusion
Section 24 of the Income Tax Act provides significant tax-saving benefits for property owners. Whether you own a self-occupied or let-out property, understanding these deductions can help you plan your taxes effectively. If you have taken a home loan, ensure you claim the maximum deduction available on interest payments.
Key Takeaways:
✔ 30% standard deduction for let-out properties.
✔ Up to ₹2 lakh deduction on home loan interest for self-occupied properties.
✔ No upper limit on home loan interest for let-out properties (but ₹2 lakh set-off limit applies).
✔ Pre-construction interest can be claimed over 5 years.
Make sure to utilize these deductions to reduce your tax liability and maximize your savings!
For personalized tax planning, consult a chartered accountant (CA) like us at +91 9769647582.
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