For most Indians, owning a home represents more than just having a roof over their heads—it's a milestone that marks financial stability and success. This long-term investment not only offers a sense of security but also serves as a tangible asset that usually appreciates in value over time.

Plus, if you choose to rent it out, you can create a reliable source of passive income.

However, given the soaring property prices, it has become increasingly difficult for people to afford their dream home without significant financial planning and support. Once you buy a property, a considerable portion of your income often goes towards paying home loan EMIs. 

To ease this financial burden, the government offers several benefits under Section 24 of the Income Tax Act of 1961. This section enables homeowners to claim tax deductions on the interest paid towards home loans. For this reason, it is referred to as “Deduction from Income from House Property.”

This blog will let you explore Section 24 of the Income Tax Act and understand how it can help reduce your tax liability while maximising the benefits of owning a property.

Income from House Property

Income from house property can arise in three main scenarios, as explained below.

1. Rental Income from Let-Out Properties

If you rent out your property, the income you receive qualifies as rental income. This amount is fully taxable and should be declared in your tax returns. 

2. Annual Value for Deemed to be Let-Out Properties

If you own more than two house properties, the Income Tax Department allows you to classify only two of them as self-occupied. Any additional properties will be treated as deemed to be let out, even if you’re not renting them. 

In this situation, the Gross Annual Value (GAV) will be determined by calculating the notional rent based on similar properties in your area. 

3. Annual Value of a Self-Occupied Property

For properties classified as self-occupied, the tax implications differ slightly. The annual value of a self-occupied property is considered nil, meaning you won’t pay tax on this amount. However, if you claim a deduction for the interest on a home loan, this annual value can even become negative.

Understanding GAV is essential, as it serves as the basis for calculating the Net Annual Value (NAV), which ultimately determines the deductions you can claim under Section 24.

Summary Table of Gross Annual Value (GAV)

Property Type Gross Annual Value Rental Property (Let-Out) Actual Annual Rent Received Deemed to be Let-Out Property Fair rental value for comparable properties in the area/locality Self-Occupied Property Nil 

Please note: Gross Annual Value (GAV) refers to the total annual rent that a property could earn if it were rented out or the actual rent received for the property if it is let out.

Deductions Under Section 24 of the Income Tax Act for House Property

Section 24 of the Income Tax Act of 1961 provides tax deductions related to income earned from house property in India. Here are the key deductions available under this section that can help you reduce your tax outgo.

1. Municipal Taxes

Municipal taxes are the annual amounts paid to local municipal corporations of the area. It can be claimed as a deduction under two conditions:

• The property owner must have paid the taxes.

• The payment must be made during the same financial year.

This tax amount is subtracted from the Gross Annual Value to calculate the Net Annual Value of the house property. (Remember, NAV = GAV - Municipal Taxes.)

2. Standard Deduction 

Under Section 24(a), a standard deduction of 30% is available on the NAV of your let-out properties. This standard deduction is designed to cover your regular property expenses like repairs and maintenance, insurance, water supply, and general upkeep. 

The best part? You get this 30% deduction regardless of how much you actually spend on these expenses. Whether you spend more or less than 30% of your NAV, you can still claim the full deduction - no questions asked!

However, there is no standard deduction for self-occupied houses, as the annual value for these properties is considered nil. 

3. Deduction on Interest of Home Loan

Homeowners can claim a deduction of up to Rs. 2 lakh on the interest paid on their home loan if they or their family reside in the property. This benefit also applies if the house is vacant.

If you decide to rent out the property, you can claim the entire interest amount paid during the financial year as a deduction from your rental income. 

4. Pre-Construction Interest

When you take a home loan, you may start paying interest even before the construction of your property is complete. This is known as pre-construction interest. Here’s how it works:

• Deduction Accumulation: Pre-construction interest cannot be claimed as a deduction during the years it is paid. Instead, it accumulates and can be claimed in five equal instalments starting from the year the construction is completed.

Example: If the construction of your property was completed on July 15, 2023, and you paid Rs. 1 lakh in pre-construction interest by March 31, 2023, you can claim Rs. 20,000 each year from FY 2023-24 to FY 2027-28.

• Deduction Limit: The maximum amount you can claim in a single financial year for both pre-construction interest and regular home loan interest cannot exceed Rs. 2 lakh.

Note: This deduction does not apply to loans taken for home repairs or renovations.

Now, let’s take a closer look at some common exceptions under Section 24 that you should be aware of.

Exceptions Under Section 24 of the Income Tax Act

When it comes to deductions under Section 24, there are specific exceptions to consider.

• Expenses like brokerage fees to arrange tenants or commissions paid for securing a loan cannot be claimed as deductions when calculating your income from house property.

• If you're living in a rented home in another city for work, you can still claim your home as self-occupied. You can deduct up to Rs. 2 lakh on home loan interest, provided all other conditions are met.

Conditions for Claiming Interest on Home Loan

The following conditions must be met to qualify for the full deduction of Rs. 2 lakh under Section 24:

• The home loan must be taken for the purchase or construction of a property.

• The loan should be taken on or after April 1, 1999.

• The purchase or construction of the property should be completed within five years from the end of the financial year in which the loan was taken.

However, you will be limited to a deduction of ₹30,000 if any one of these conditions is met:

• The loan was taken before April 1, 1999, for purchasing, constructing, repairing, or renovating a property.

• The loan was taken on or after April 1, 1999, solely for repairs or renovations.

• The purchase or construction of the property is not completed within five years after the financial year in which the loan was taken.

Additionally, you must have an interest certificate from your lender to verify the interest payments on your home loan. This document will support your claim for the deduction when filing your tax return.

Note: Under the New Tax Regime, no deduction is allowed for interest on loans taken for self-occupied properties. However, for let-out (rented) properties, you can claim the full interest deduction without any limit, regardless of which tax regime you choose.

Additional Benefits for Home Loan Deductions

If you're a first-time homebuyer, you may be eligible for additional deductions on the interest paid on your home loan under Sections 80EE and 80EEA. Here's how they work.

• Section 80EE: You can claim an extra deduction of up to Rs. 50,000 on home loan interest, provided the loan amount is Rs. 35 lakh or less and the property's value does not exceed Rs. 50 lakh. Also, the loan must have been sanctioned between April 1, 2016, and March 31, 2017.

• Section 80EEA: This section offers an additional deduction of up to Rs. 1.5 lakh on home loan interest, specifically for affordable housing. To qualify, the stamp duty value of the property must not exceed Rs. 45 lakh, and the loan must be sanctioned between April 1, 2019, and March 31, 2022. You cannot claim this deduction if you're already claiming it under Section 80EE.

Additionally, Section 80C offers tax relief of up to Rs. 1.5 lakh annually on principal repayments of your home loan, including payments for stamp duty and registration charges. This is available as long as you don’t sell the property within five years of getting possession. 

Required Documentation to Claim Deductions under Section 24

To successfully claim deductions under Section 24 of the Income Tax Act, you need to have the following documentation ready:

• Interest Certificate from the lender

• Property ownership documents (property registration deed/title deed)

• Loan agreement with the bank or financial institution

• A sanction letter from the concerned bank or financial institution

• Annual statement of the home loan, including the break-up of principal and interest

• Municipal tax receipts

• Rental agreements (if applicable)

• Documentation of pre-construction interest paid

Now, read on to understand how to calculate income from house property to see how these deductions affect your taxable income.

How to Calculate Income from House Property?

Understanding how to calculate income from house property can make it easier to manage your taxes. In this section, you will learn the different steps of calculating taxable income for both self-occupied and let-out properties so you can see how the numbers work.

Scenario Example

Imagine Amit is currently repaying a home loan, and in a given year, he has paid a total of INR 6 lakhs, with INR 2 lakhs going toward interest. On top of that, he has also accumulated pre-construction interest of INR 2 lakhs. 

For his let-out property, Amit earns INR 9,000 per month in rent and pays municipal taxes of INR 4,000 annually.

Let’s see how his income from house property will be calculated in two different scenarios: (1) if the property is self-occupied or (2) if the property is rented out.

Here’s a breakdown of both scenarios in the table below:

Calculation of Income from House PropertySelf-Occupied (₹)Let-Out (₹)Gross Annual Value (Rent earned)Nil9,000 × 12 = 1,08,000Less: Municipal Taxes NA4,000Net Annual Value (NAV)Nil1,04,000 (GAV - Municipal Taxes)Less: Standard Deduction (30% of NAV)NA31,200Less: Interest on Home Loan2,00,0002,00,000Less: Pre-construction interest (1/5th of INR 2 Lakhs)40,00040,000Less: Total Interest Restricted to2,00,0002,60,000Income/Loss from House Property(-2,00,000)(-1,67,200)

Here is the final computation of Income or Loss from the above calculations:

• Self-Occupied Property: Loss of ₹2,00,000 due to home loan interest and pre-construction interest exceeding any income.

• Let-Out Property: Loss of ₹1,67,200 after deducting municipal taxes, standard deductions, and interest payments.

These losses can help offset taxable income in future assessments.

Note: You can only offset a maximum loss of ₹2 lakhs from your income under the house property category. Any loss exceeding this limit can be carried forward for up to 8 years and can only offset income generated from house properties.

Conclusion

Many people dream of owning a home, and the Government of India is supporting this aspiration by offering various benefits under Section 24 of the Income Tax Act. These provisions aim to make homeownership more accessible by providing tax relief on home loan interest and other related expenses.

Remember, it’s always a good idea to consult with a tax professional or refer to official tax legislation to ensure you report everything accurately and get the most out of your deduction claims.

Frequently Asked Questions

1. What is the deduction for Section 24?

Under Section 24 of the Income Tax Act, you can claim a deduction for the interest paid on home loans. For self-occupied properties, the maximum deduction is ₹2 lakh per year. For let-out properties, you can claim the entire interest amount as a deduction.

2. What is the exemption limit for income from house property?

The exemption limit for income from self-occupied house property is ₹2 lakh on home loan interest. For rented properties, there is no limit on the interest deduction, but the maximum loss you can claim in a year is ₹2 lakh. Any excess loss can be carried forward for up to 8 years.

3. What are the types of house property?

There are primarily three types of house property:

• Self-Occupied Property: A property where you reside.

• Let-Out Property: A property that you rent out to tenants.

• Deemed to be Let-Out Property: Additional properties that are not self-occupied but are considered rented for tax purposes.

4. Can I claim tax benefits under Section 24 of the Income Tax Act every year?

Yes, you can claim tax benefits under Section 24 every year as long as you have an outstanding home loan and you are paying interest on it. Just make sure to meet the eligibility criteria set by the Income Tax Act.

5. Can I claim both Section 24 and 80EE?

Yes, you can claim both Section 24 and Section 80EE. Section 24 allows you to deduct the interest on your home loan, while Section 80EE provides an additional deduction for first-time homebuyers up to ₹50,000. 

6. Can I claim both HRA and a home loan?

Yes, depending on your situation, you can claim both HRA (House Rent Allowance) and home loan deductions. If you work in a different city and live in a rented house while your home loan is for a property in another city where your family lives, you can claim both benefits. 

Similarly, if you rent out the property for which you took the loan and live in a rented home, you can still claim both as long as you declare the rental income properly in your tax returns.

7. What if the tenant pays the municipal tax?

If the tenant pays the municipal tax, you cannot claim it as a deduction. Only the municipal taxes paid by the owner are eligible for deduction under Section 24 of the Income Tax Act.  

8. Can co-owners of a house property jointly claim tax deductions?

Yes, co-owners of a house property can claim tax deductions jointly, provided they are also co-borrowers on the home loan. Both individuals must be named on the loan documents to qualify for tax benefits under Section 24 of the Income Tax Act. Each co-owner can claim deductions in proportion to their ownership share. 

However, the combined total deduction claimed by all co-owners cannot exceed the limits set by the Income Tax Act.