Section 24: Comprehensive Guide on Deduction of Interest on Home Loan

Author name: Ashish Gambhir

Created date: 06-05-2024

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Investing in real estate, particularly owning a house, is a significant achievement for many individuals. Apart from providing shelter, it also serves as an asset that can yield financial benefits. In India, There are various provisions available for taxpayers to avail deductions and exemptions in Income Tax Act, 1961 and one such provision is Section 24, which deals with the deduction of interest on house property. Let's understand in detail about Income from House Property and Section 24 and understand how it benefits taxpayers.

Income from House Property:

Under the Income Tax Act, 1961 in India, income from house property is taxed under the head "Income from House Property". Here are the types of income considered under this head

• Rental Income from House Property
• Annual Value of Property in case of property is deemed to be let out.

Types of deduction available in Income from House Property:

• Municipal Tax  Standard Deduction
• Deduction under section 24

What is Section 24 of Income Tax Act, 1961?

Section 24 deals with the deduction of interest paid on Home Loan taken for the House Property that is either self-occupied, let out or deemed let out. It allows deduction in case of Loan taken for construction, acquisition, repair, renewal or reconstruction of property.

Key Highlights of Section 24 of Income Tax Act, 1961:

• Deduction of Interest Paid: The deduction available under section 24 of Income tax Act, 1961 is available for interest only and not principal paid during the year.
• Ownership requirement: To claim the deduction under this section, taxpayer should be the owner of the House Property for which Loan has been taken.
• Maximum Deduction: Maximum deduction available under this section is Rs. 2 Lakhs per annum only irrespective of the actual amount paid in EMI in case of self-occupied property and No upper limit for let out property.
• End Use of Loan: The loan amount must be used for the construction, renewal, renovation of the house property for which it has been taken and not for any other use.
• Lender of Housing Loan: Loan must be taken from Banks, NBFC or any financial institution.
• Pre-Construction Interest: Any amount of interest paid prior to the previous year in which house property is constructed or acquired, will be available for deduction in 5 equal installment from the year in which such property is constructed or acquired.
• Interest Certificate: Tax Payer are required to obtain the interest certificate from banks, NBFC or financial institution from where the loan has been taken to claim the interest deduction under this section.

Deduction of interest in case of Joint Loan or Join Ownership of House Property

This is very common practice in India that House Property is generally Co-Owned and also Home Loan taken is Joint. Deduction of Interest in this case will be allowed in the same proportion as Ownership of House Property. For Tax Saving purpose also, it is beneficial to take Joint Loan as both parties can take deduction up to 2 lakh in their Income Tax Return.

Impact of deduction under this section for tax payers:

For individuals who have taken housing loans, Section 24 offers significant tax benefits. By claiming deductions on the interest paid, taxpayers can reduce their taxable income, thereby lowering their overall tax liability. This incentivizes individuals to invest in real estate and promotes homeownership.