Detailed Overview of Section 24 of the Income Tax Act

Every middle-class Indian dreams of buying or constructing a home. However, it’s a significant one-time cost that can be difficult to manage. And that’s where home loans can help. Besides convenience, home loans also offer tax benefits, like section 24 of the Income Tax Act, which allows homeowners to claim deductions on the interest paid for home loans against self-occupied property. This deduction under Section 24 of the Income Tax Act has proved to be a boon for homeowners in India.

Section 24 of the Income Tax Act

Section 24 of Income Tax is called Deduction from Income from House Property. It allows homeowners to claim the highest deduction of up to Rs. 2 lakh paid on the home loan interest. In renting homes, the owners can opt for a Section 24 deduction on the entire interest they pay on the home loan.

Advantages of Section 24 of the Income Tax Act

Major deductions that you can claim under section 24 1 of the Income Tax Act are as follows:

• 24 (a) Standard deduction @30%
• 24(b) Interest on Borrowed Capital

Deduction on Rental Income

Homeowners can claim a 30% tax deduction on the lowest net annual value of their homes or their rental income. Nevertheless, Section 24(a) of the Income Tax Act does not allow the owners of self-occupied homes to avail themselves of this deduction. This deduction, also called the standard deduction, offers tax relief for all property and maintenance charges incurred on a home during a financial year.

Tax Savings on Home Loan Repayment

Under section 24 (b) of the Income Tax Act, homeowners can claim deductions up to Rs. 2 lakh for home loan repayment. However, the maximum tax benefit they can claim will depend on the amount they have repaid in a year.

You can qualify for tax deductions under section 24 (b) if you have taken a home repair, construction, purchase, or rebuilding loan. However, under this section, you cannot enjoy tax savings for loans taken to pay commission or brokerage to an agent or mediator.

Pre-Construction Interest

If you have taken a loan to construct or buy a home, you can claim deductions on the interest on the pre-construction loan but not on the home reconstruction or repair loan. Note that the total amount of pre-construction and the interest on the home loan to be claimed should not exceed Rs. 2 lakh. Interest is allowed in five equal installments from the year of a home purchase to when the construction is completed.