Section 24 of income tax act

Section 24 of income tax act allows two deduction i.e. i) standard deduction & ii) deduction against interest on home loan.

Content

1.What is section 24 of income tax act?

2.What is standard deduction u/s 24 of income tax act?

3. Deduction of interest on home loan

1.What is section 24 of income tax act?

Section 24 of income tax act allows deduction from house property income. This section deals with interest that an individual pays on home loans.

Income tax act allows many exemption on specific investment or expenditures. Therefore , the income tax department recognizes housing is one of the most important need as well as asset. And hence many investment towards the first home is exempted from tax.

Section 24 of income tax act is named as “Deduction from income from house property”. Income from house property is applicable in following cases:

• Renting out houses then rent income will be treated as income from house property head.

• If you have more than one house, then the net annual value of the houses other than the one you are living in will be treated as your income.

If you have only one house and you are living in it then income from house property will be Nil. And income from rent of additional house will be subject to tax after deduction made u/s 24.

2.What is standard deduction u/s 24(a) of income tax act?

This deduction is available to every taxpayer. 30% of net annual value(NAV) is deductible irrespective of any expenditure incurred by the tax payer. This is not applicable if you have only one house property.

3. Deduction of interest on home loan u/s 24(b)

Interest on borrowed capital is allowable as deduction on accrual basis (even if books of account are kept on cash basis), If capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property.

If loan taken for self occupied property , then you can claim exemption of upto Rs. 2,00,000.

And if loan is taken for renovation or reconstruction of a house, you cannot claim tax exemption until renovation is completed.

You can claim interest even if you have taken a loan for purchase or construction (not renovation) of a property before actually buying or completing its construction. From the year in which the house is purchased or construction is completed, you can claim deduction in 5 equal installments on the interest paid before the completion of construction or purchase.

Following points should be noted:

a) As the deduction is available on “accrual” basis. It should be claimed as deduction on yearly basis , even if the interest is not actually paid during the year.

b) Deduction is available even if neither the principal nor the interest is a charge on property.

c) Interest on unpaid interest is not deductible.

d) No deduction is allowed for any brokerage or commission for arranging the loan.

e) Interest on fresh loan taken to repay the original loan raised for the aforesaid purposes, is allowable as deduction.