To encourage its citizens to own a home, the Government of India has introduced a host of home loan tax benefits under the Income Tax Act, 1961. Homeowners can claim tax exemptions on their home loan repayments under Section 80C, 24, 80EE, and 80EEA of the Income Tax Act, 1961. So, if you have taken a home loan, you can claim tax exemptions and save money on your taxes in the process. Section 24 of the Income Tax Act, 1961 allows homeowners to claim yearly tax exemptions against the interest paid on their home loans.
Let’s find out more about section 24 tax deductions, exceptions, and rebate calculations in detail.
Section 24 lets homeowners claim yearly tax exemptions of up to Rs. 2,00,000 on interest payments against home loans. It also allows homeowners to claim deductions from taxes paid for the income derived from their rented or leased property.
For every individual property, a certain ‘income from house property’ is considered and taxed accordingly. However, when one owns a single house and lives in it, the property is considered ‘self-occupied’, and the income generated from it is not taxed.
Note that income from residential property is applicable only in the following cases:
Note: Net Annual Value is essentially the rent a property owner could have earned in a year had he/she put it on rent.
When calculating the taxable income under Section 24, you can avail the following deductions:
Municipal taxes
Includes service taxes levied by local authorities for your house property. These are applicable for tax deductions provided homeowners pay them during the year they are charged.
Standard deductions
This tax exemption under Section 24(a) of the Income Tax Act is allowed for everyone. The standard deduction is 30% of the net annual value of a property and applies even when the actual expenses are lower or higher. Its calculation does not consider additional expenses incurred for electricity, repairs, insurance, water supply, etc. Note that no standard deduction applies for a self-occupied house. This is because the annual value of such a property is nil.
Deduction on home loan interest
Homeowners can claim a deduction under Section 24 (b) of the Income Tax Act if they have taken a home loan to purchase, renovate, or construct a house. They can claim a maximum of Rs. 2 lakh of tax deductions on the interest component of their home loans.
You can claim tax deductions only for the given conditions:
You can claim the tax deductions under Section 24 regardless of which financial institution granting the home loan. All you have to do is calculate the interest component payable for the home loan annually and claim tax deductions.
Also Read: How To Get Tax Deductions For Medical & Health Insurance Under Section 80D?
There are certain exceptions to the provisions of Section 24. They are highlighted below:
The taxable income for house property is calculated in the following manner:
Income from house property = Gross annual value – Municipal taxes – Standard deduction – Interest on borrowed capital.
One needs to keep in mind the following factors when calculating the taxable income.
The income from house property is nil in case-
The following table details what deductions are applicable based on occupancy.
Occupancy | Gross Annual Value | Deduction for municipal taxes | Standard Deduction | Deduction for home loan interest |
Single self-occupied house | N/A | N/A | N/A | Rs. 30,000 or Rs. 200,000 if applicable |
House property unoccupied by owner due to their employment/business being in another place | N/A | N/A | N/A | Rs. 30,000 or Rs. 200,000 if applicable |
Let-out property | Computed as per Section 23(1)* of the Income Tax Act | Based on actual payment | 30% of NAV | The entire amount of home loan interest is allowed as a deduction. |
Multiple self-occupied properties | One property is allowed as self-occupied property. Rest are considered to be let out for computation. | |||
Self-occupied and let out for the rest of the year | Treated just like a let-out property | |||
Part of the property is let out, and the other self-occupied | Each part of the property can be considered separate and calculated accordingly |
*Section 23 (1) of the Income Tax Act states that –
A house property’s gross annual value will be considered the higher of the following:
Also Read: Taxation In Mutual Funds
Section 24 of the Income Tax Act also provides tax deductions on pre-construction interest for a property. Here are the applicable conditions for the same:
Let us understand this with an example,
Siddharth takes a loan for property construction. Suppose, during the pre-construction period, he pays an interest of Rs. 6,00,000. After the construction is over, Siddharth can claim a deduction of Rs. 6,00,000 in 5 equal instalments. Meaning, every year, he can claim a tax deduction of Rs. 1,20,000. He can claim the first instalment in the financial year in which the construction is complete.
You can also obtain tax deductions from rented out properties. In this case, there is no upper limit to the deduction amount. Meaning, you can claim the entire interest amount that you pay towards your loan.
For Example,
Mr Singh takes a loan from a bank and pays Rs. 36,000 as EMI. The total EMI that he pays in a year will be Rs. 4,32,000. Now let’s say, out of the overall EMI amount, the principal component is Rs. 1,68,000, and the interest component is Rs. 2,64,000 for the current financial year. In addition, his pre-construction interest stands at Rs. 1,00,000. He will be able to claim Rs. 20,000 from this pre-construction interest every financial year.
Now, let us consider that he rents out his property at Rs. 35,000 per month.
According to this example,
Property’s gross annual value | Rs. 4,20,000 |
Less: Municipal tax | Rs. 10,000 |
Property’s net annual value | Rs. 4,10,000 |
Less: Standard deduction (30%) | Rs. 1,23,000 |
Less: Housing loan interest | Rs. 2,64,000 |
Less: Interest on pre-construction | Rs. 20,000 |
Income from the house property | Rs. 4,10,000 – Rs. 4,07,000 = Rs. 3,000 |
Loss | Nil |
Here are a few points that you must keep in mind before claiming a tax deduction for rented out properties:
Section 24 of the Income Tax Act offers tax benefits for the interest component of home loans. So, if you’re planning to take a home loan, don’t forget to claim tax deductions. Talking about home loans, Navi offers home loans up to Rs.10 crore in a 100% paperless manner. Just download the Navi app to apply for a home loan and enjoy quick and seamless approval.
Ans: You can claim deductions between Rs. 30,000 to Rs. 2,00,000 under Section 24 of ITA. The deductions are applicable only to the interest component of home loans.
Ans: Only homeowners can tax deductions under Section 24. For joint loans, both loan applicants can claim their share of tax deductions separately.
Ans: Yes. You can claim tax benefits on the principal amount repayment of your home loan under Section 80C of the Income Tax Act. A homeowner can claim up to Rs. 1,50,000 as a deduction in a financial year. Also, first-time homebuyers are entitled to claim additional Rs. 50,000 as a deduction on their home loan interest under Section 80EE.
Ans: Yes, you can claim tax exemptions under both these sections. As per Section 24, you can claim a tax deduction of up to Rs. 2,00,000 on home loan interest of a self-occupied property, and under Section 80EE, you can claim an additional tax deduction on the interest component of a home loan of up to Rs. 50,000. So, in total, you can obtain a tax deduction of Rs. 2,50,000 on your home loan’s interest component.
If you have purchased a property in your wife’s name by availing of a home loan, then you won’t be able to claim tax deduction under Section 24, even though you pay the monthly instalments. You can, however, ask your wife to transfer the ownership of the house through a gift deed.
Pre-construction interest is the interest that an individual has to pay while the house/property construction continues. Note that tax deduction on home loan interest cannot be claimed while the house undergoes construction. It can only be obtained once the construction is completed.
Before you go…
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.