Section 24 Income Tax Act: Its Exemptions and Deduction Limits

Written by : Knowledge Centre Team

2024-02-26

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Section 24 in Income Tax Act? A Must-Have Guide for Every Employee

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Section 24 of the Income Tax Act- Simplified

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The Essentials of House Property Tax

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Deductions Under Section 24

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Exemptions Under Section 24

Under the income tax returns, all property types are treated as "home property" and are subject to the appropriate taxes accordingly. For tax purposes, the owner is the legal owner of the property and can exercise ownership rights on his/her own behalf. Section 24 of the Income Tax Act 1961 considers interest paid on a home loan, i.e., "deductions from income from home property". It allows you to exclude the interest you have paid on your home loan from your taxable income.

There is a ₹1,50,000 cap on tax deductions under sec 24. You can still claim deduction on taxes even if you don't live in the house. Monthly rental income from a house may be deducted from taxes as the rent you pay on a rental property is taxed.

Section 24 of the Income Tax Act- Simplified

Under Section 24 of the Income Tax Act, homeowners who reside in the home property and are the owner or a member of their family are eligible to file deduction up to ₹2 lakhs (or ₹1,50,000 if you are filing returns for the previous financial year) from their interest on home loan section 24. The entire amount of interest is deductible if the residence is rented.

The Essentials of House Property Tax

A Real estate can be any of the following; your home, place of business, retail establishment, or even a piece of land next to a building, such as a parking lot. The Income Tax Department claims that the Internal Revenue Code does not distinguish between residential and business properties.

When a property is used for business or profession, it is taxed as "income from business and profession." Costs for upkeep and repairs are deductible as company expenses. House property taxes are levied on various types of properties, such as:

Self-occupied Housing Property

The only people who live in a self-occupied home are the owner's family. This property can belong to either the taxpayer, their spouse, children or parents. For income tax purposes, an unoccupied residential property is regarded as self-occupied.

Before the FY 2019-20, only the first self-occupied residential property owned by the taxpayer was considered self-occupied while all additional properties were assumed to be rented out. Whether a property qualifies for a self-occupied deduction is up to the taxpayer. Treating two residences as self-occupied has proved advantageous for 2019-20 and beyond. Currently, a homeowner can write off the expenses of owning and living in two properties as self-employment income while also writing off the rental revenue from a third property.
Rented Out Housing Property

A house rented out for all or part of the year is considered a let-out house property for income tax purposes.
Property Passed Down Through the Generations (Inherited property)

Depending on your preferences, you can utilise an inherited property—one that was given to you by your parents, grandparents, or other family members—as your primary home or rent it out.

Deductions Under Section 24

The Indian Income Tax Act of 1961 allows for a number of tax deductions under section 24.

Municipal Tax Deductions: Municipal tax is an annual one-time payment which is made to the local government. Subtract the annual gross value from the total taxes to determine a home's net worth. The deduction will be granted if the homeowner pays and bears the municipal tax for the entire fiscal year.
Standard Deductions: This section sets the standard deduction for income tax purposes at 30% of Net Annual Value. The self-occupied residence is not subject to this deduction, though.
Loan Interest Deductions: The interest on home loan taken for buying, fixing, constructing, rebuilding or renewing a property is deductible from taxes under Section 24.

Exemptions Under Section 24

You can be eligible for a tax deduction on the entire interest you pay, up to the maximum permitted amount if you don't live in the house. If you work or operate a business in a different town and live in a different property or rent a property in the city where you work, you are only eligible to receive a tax exemption on interest payments up to ₹2 lakhs in this situation.

You have three years from the date of loan origination to either buy your property or complete construction in order to deduct the entire interest amount. If the construction or acquisition is not finished in three years, your claim will be limited to ₹30,000 rather than ₹2 lakh. It is necessary to obtain an interest certificate if you take out a loan.

Purchasing a house is difficult, and making mortgage payments over time is even more challenging. Section 24 of the Income Tax Act offers a tax benefit that first-time homebuyers will value. It is easier to purchase the house of your dreams if you take advantage of Section 24 deductions.

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