Smart property business is a great way to get rich, but when you get rich, you have to deal with big tax bills. If you own land in India, you’ve probably heard of the tax on income from residential properties. But did you know that Section 24 of the Income Tax Act has a lot of deductions that can help you pay a lot less in taxes? Deductions are well understood and used wisely to reorganize finances while increasing the gain from real estate properties. Therefore, this post will discuss Section 24 of the Income Tax Act, containing the deduction on home loan interest, municipal taxes, and much more.
What is Section 24?
Section 24 of the Income Tax Act aims at providing tax relief to individuals and Hindu Undivided Families (HUFs) who earn income from residential properties, whereby the deductions are granted to maintain and own rental or other residential properties. So, even if you are renting a house or using it as your living quarters, there are ways through which you can still enjoy certain tax exemptions, making it more financially viable to own a property. Individuals having income from house property can claim expenses under this section and, thus net off specific income from charging under “Income from House Property”.
These deductions are especially essential for taxpayers who actively rent out homes or make large real estate investments.
Key Deductions under Section 24
1. Standard Deduction (30% Annual Value)
One of the most simple and valuable deductions under Section 24 is the standard deduction, which allows you to deduct 30% of your property’s annual worth. This deduction is applicable regardless of whether the property is rented out or self-occupied.
The annual value is typically defined as the amount for which the property might be rented. If the property is self-occupied, the annual value is estimated using the prospective rental income. In effect, this deduction decreases the property’s taxable income by allowing you to deduct 30% of its value for upkeep and repairs, which is generally seen as an acceptable cost.
This deduction is especially advantageous because it is a flat rate, which means you don’t have to submit substantiation for expenses. Whether you live in the house or rent it out, you can claim this deduction as long as it generates revenue.
2. Interest on Home Loan (up to ₹2 lakhs)
In addition, Section 24 also grants tax exemption on home loan interest. This deduction has become the point of attraction for those whose home loans are exceedingly high whether it be for a homeowner or an investor.
Under Section 24, a taxpayer can claim a deduction of up to ₹2 lakh for interest towards house loans every year. This benefit is irrespective of the fact whether the property is self-occupied or rented. The said deduction goes as follows:
- For a self-occupied property: In the case of having owned a house for self-occupation, he receives a maximum deduction of ₹2 lakh for home loan interest. Thus, it reduces taxable income to a great extent and finally his total tax liability.
- For Let-out Properties: If the property is let out, such a deduction allows him to include the entire amount of home loan interest repaid against his rental income. This amount ultimately leads to his lower rental income thus reducing taxable income.
Home loan interest may be said to be the most attractive part of Section 24, and it can make a big difference in the whole of your tax picture.
3. Municipal taxes
Muni taxes are also a big draw for property owners. Property taxes, just like other local taxes, are continuous imposts on home or commercial property. Section 24 enables the deduction of taxes for these as well.
Municipal taxes paid on the property can be deducted from its yearly value to calculate the net annual value (NAV). The NAV is the amount for which taxes are levied.
Municipal taxes reduce your property’s taxable rental income.
Before determining rental revenue for tax purposes, deduct property taxes from the total annual value if you rent your property. Thus, your taxable rental income will decrease, reducing your tax burden.
Who Gets Section 24 Deductions?
For Section 24 deductions, the property must meet certain criteria. They are:
- Ownership: The taxpayer or his family must own the property.
- Income: The property must yield income from renting or personal use. Even if you reside there, you can deduct mortgage interest.
- Home Loan Interest: The taxpayer must have taken out a home loan to build, buy, or renovate the property and paid interest.
These deductions are available to individuals and Hindu Undivided Families (HUFs) regardless of tenant status.
How to Maximize Tax Benefits?
1. Self-occupied Property
Living in the home and having a house loan can result in a ₹2 lakh discount on interest paid. The 30% standard deduction on the property’s annual value is also included. This is an excellent way to reduce taxable income.
2. Let Out Property
The tax benefits for rental houses are considerably more evident. You can deduct whole house loan interest from rental income. You may claim a 30% standard deduction in addition to the interest deduction. If your rental revenue is less than the loan interest, you can use the difference against future rentals for eight years.
3. Pre-Construction Interest: A Hidden Gem
Many homeowners are unaware of the tax benefits of pre-construction mortgage interest. Section 24 lets you deduct pre-construction loan interest if you have built or bought a home.
This benefit can significantly reduce your taxable income in the first few years of property ownership. The pre-construction interest can be claimed in five equal installments beginning with the year the work is finished. This provides significant tax benefits, especially if you’re in the early phases of mortgage repayment.
Common Pitfalls To Avoid
Section 24 offers considerable tax savings, but property owners often make mistakes while claiming them. Below are a few reminders:
- Interest Calculation: Verify the home loan interest calculation and documentation.
- Incorrect calculations may result in you not obtaining the entire benefit.
- Municipal Tax Records: Keep correct municipal tax records. Failure to do so may prevent property tax deductions.
- Make sure the property qualifies for deductions. Pre-construction interest can only be recovered if the loan is used to build or buy a home.
Avoiding these common mistakes will help you optimize your tax savings and claim all applicable deductions.
Conclusion
Section 24 of the Income Tax Act allows property owners to reduce their taxable income and claim considerable tax deductions. Understanding and properly utilizing the deductions available for home loan interest, local taxes, and the standard deduction on annual valuation will help you make property ownership more financially reasonable.
First-time homeowners, investors, and self-occupied property owners can save a lot on taxes with Section 24. Keep up with these deductions and claim them correctly to maximize your property investments. This will lower your taxes and boost your savings, making property ownership more profitable and sustainable.
Visit Tata Capital’s Website or download the Tata Capital App for convenient access to personalized financial services to learn how home loans and other financial solutions can help you manage your property investments.
Don’t miss out on Section 24 deductions—take full use of them to keep extra money in your pocket!
FAQs
Yes, you can claim both Section 24 (up to ₹2 lakh for home loan interest) and Section 80EE (an additional ₹50,000) if you meet the eligibility criteria for both, including limits on loan amount and property value.
To claim Section 24, declare the home loan interest under "Income from House Property" in the ITR form, and ensure you have the lender's interest certificate as proof.
Yes, you can claim both Section 24 and HRA if you live in a rented house and have a home loan for another property. But, the property should not be self-occupied or under construction.
23 January 2025
6 mins read
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