Everything you need to know about Section 24 of Income Tax Act
Aug 06, 2019 Legal Guidance
A property is perceived to generate income and hence the government imposes a tax on the potential income regardless of whether the owner is making any rental income out of it or not. For the tax liabilities, the authorities decide the annual value of such properties. The income also has the provision of deduction under Section 24 of the Income Tax Act.
According to Section 24 of the IT Act, a flat deduction of 30 percent is allowed on the net value of the property. However, if the property is self-occupied, the deduction is ‘nil’ irrespective of the payment of the municipal tax or not. In simple terms, if the owner has bought the property entirely on his own without any help from any housing finance institutes or banks, then he can claim a deduction of Rs 30 for every Rs 100. But if the property is self-occupied then the same is not true.
The income from the property is taxed on the basis on the net annual value and not the gross annual value. The net value of the property is derived from deducting the tax amount incurred towards playing the municipal body. This section also applies to the case where the buyer has taken help from banks of financing institutions to buy, renovate, construct or repair the property.
If the property is not generating any income then the borrower can claim the deduction of Rs 2 lacs on the home loan interest paid in a financial year. In case the property is generating income due to rentals then the entire home loan interest component is deductible. This is to encourage the property owners to let out their properties for rentals.
According to Section 24 of the IT Act, a flat deduction of 30 percent is allowed on the net value of the property. However, if the property is self-occupied, the deduction is ‘nil’ irrespective of the payment of the municipal tax or not. In simple terms, if the owner has bought the property entirely on his own without any help from any housing finance institutes or banks, then he can claim a deduction of Rs 30 for every Rs 100. But if the property is self-occupied then the same is not true.
The income from the property is taxed on the basis on the net annual value and not the gross annual value. The net value of the property is derived from deducting the tax amount incurred towards playing the municipal body. This section also applies to the case where the buyer has taken help from banks of financing institutions to buy, renovate, construct or repair the property.
If the property is not generating any income then the borrower can claim the deduction of Rs 2 lacs on the home loan interest paid in a financial year. In case the property is generating income due to rentals then the entire home loan interest component is deductible. This is to encourage the property owners to let out their properties for rentals.
Conditions apply:
Certain condition needs to be fulfilled before claiming the deduction under this Section. If the loan money is used in construction or purchase of the property, the borrower can claim a deduction of Rs 2 lacs on pre-construction interest in a year in five equal instalments at the beginning of the year, in which the property is constructed or purchased.
Three conditions under which the borrower can claim the deduction:
Three conditions under which the borrower can claim the deduction:
- The loan must have been taken after April 1, 1999
- Must have the certificate from the lender about the interest calculation
- Work should have been completed within 5 years of taking the loan.
For example, if you are hoping that the construction gets finished by FY 2020, then you can claim a deduction for pre- interest till March 2019.
According to the Section 24, “Where the property has been acquired or constructed with borrowed capital, the interest shall be deducted in equal instalments for the said previous year and each of the four immediately succeeding previous years.” The option is not applicable if the money from the loan is used for repairs and improvements.
If the borrower has paid more than Rs 2 lacs s interest, then they have the option to carry their additional expense forward for another three years to set off the losses.
According to the Section 24, “Where the property has been acquired or constructed with borrowed capital, the interest shall be deducted in equal instalments for the said previous year and each of the four immediately succeeding previous years.” The option is not applicable if the money from the loan is used for repairs and improvements.
If the borrower has paid more than Rs 2 lacs s interest, then they have the option to carry their additional expense forward for another three years to set off the losses.
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