Section 24 of the Income Tax Act allows us to claim Home Loan Interest amount of maximum Rs. 2 lakh in a financial year, against a property for which you have taken Home Loan. While paying EMI, the principal amount can be claimed under Section 80C, whereas the interest amount from EMI can be separately claimed under Section 24.
If the property is let out, than entire interest amount paid against home loan in financial year will be considered for deduction. It is important to note that this deduction is allowed only with old tax regime.
- What is Section 24?
- Computation of Income from House Property
- Section 24 Limits Explained
- Frequently Asked Questions
What is Section 24?
- Section 24 of Income Tax Act allows you to claim deductions in case of Income from House Property
- If the property is bought on Home Loan and you are paying EMI (Equated Monthly Installment), you are eligible to claim deductions against your Home Loan EMI
- Section 80C allows the deduction of Principal amount in your Loan EMI
- Section 24 allows deduction of Interest amount in your Loan EMI
- If the property is self occupied (you stay with your family), than Rs. 2 lakh or the total interest paid in home loan (whichever is lower), can be claimed in a financial year. This is the case when you buy a property. Incase you are taking loan for reconstruction or repair purpose of existing property, than maximum Rs. 30,000 can be claimed in this section
- If the property is let out, the entire interest amount paid by you in a financial year can be claimed under Section 24
Use below calculator to calculate home loan EMI:
Computation of Income from House Property
Let us now compute the Income from House Property to better understand various scenarios for deduction purpose:
Gross Annual Value
- For self occupied property, since there is no income received, the Gross Annual Value is considered as nil
- For let out property, the gross annual value will be total rent amount received in the financial year.
There are certain deductions need to be made on gross annual value:
Municipal Tax on House property is the tax levied by the local authority, where the tax need to be paid by the home owner for the said financial years consistently. This amount will be reduced from the Gross Annual value mentioned above to calculate Net Annual Value
Standard Deduction: Section 24a
Standard Deduction (Section 24a) of 30% will be deducted from Net annual value calculated above. This deduction is irrespective of the cost incurred for repair purpose and is allowed for let out property. For self occupied property, since the net annual value is nil, standard deduction will be zero.
Interest on Borrowed Capital (Home Loan): Section 24b
This belongs to Section 24b of the Income Tax Act:
- If property is let out, the entire interest on Home Loan will be deducted. Home loan can be for acquisition, construction, repairing, re-construction purpose of let out property
- In case of self occupied property, maximum of Rs. 2 lakh will be allowed as deduction against home loan interest amount, when loan is taken for the purpose of acquisition or construction of house property
- In case of self occupied property, if loan is taken for the purpose of reconstruction, repairs or renewals of a house property, than maximum of Rs. 30,000 will be allowed as deduction against interest from home loan
ALSO READ: Home Loan Income Tax Benefits
Section 24 Limits Explained
There are 2 scenarios based on which Section 24 limits will be derived:
Self Occupied property:
In case of self occupied property, the gross annual value is nil since you are not receiving any income from house property on annual basis. And based on Section 24, maximum of Rs. 2 lakh can be claimed as Home Loan Interest amount, if loan is taken for acquisition or construction of house property
Let out property:
In case of let out property, the net annual value will be calculated after reducing municipal tax and standard deduction of 30% from gross annual value (total rent received in the financial year). And this net annual value will be considered as income from house property.
As far as deduction is concerned, the entire interest amount from home loan in financial year can be claimed under Section 24 for income tax saving purpose.
So Section 24 of income tax act allows us to claim deductions against the interest amounts paid for the home loan to buy a new property for the purpose of self occupation or to rent it out.
If property is self occupied, maximum of Rs. 2 lakh can be claimed on home loan interest amount, and in case of let out property, entire interest amount paid as home loan EMI in that financial year can be claimed with old tax regime.
Some more Reading:
- New Tax Regime Slabs and Deductions Allowed
- Section 80CCD Deductions Explained
- Rs. 1000 Mutual Fund returns for 15 Years
Frequently Asked Questions
Does New Tax Regime allow Section 24 Deduction?
No, new tax regime does not allow Section 24 deduction. This deduction is only applicable in case you select old tax regime.
What is the limit of Section 24 on let out property?
In case of let out property, the entire interest amount that is part of home loan EMI for that financial year can be claimed as deduction under Section 24.
Section 24 Limit on self occupied property
For self occupied property, if loan is taken for acquisition of property, than maximum of Rs. 2 lakh can be claimed under Section 24 against home loan interest amount paid for that financial year.
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Income Tax Calculator App – FinCalC
For Income Tax Calculation on your mobile device, you can Download my Android App “FinCalC” which I have developed for you to make your income tax calculation easy.
What you can do with this mobile App?
- Calculate Income Tax for new FY 2023-24 and previous FY 2022-23
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