All the Deductions You Need to Know on Home Loans under Section 24

There are many advantages to being a homeowner. In addition to providing a lifetime of security, owning a home can be a wise investment because property values rise yearly. The best way to buy a house is with a home loan.

The government provides several tax breaks and deductions on home loans, thus increasing the profitability and advantages of such loans. Section 24 of the Income Tax Act, Article 80C, Article 80EE, and Section 80EEA deal with tax rebate claims or deductions on home loans. This article gives you insight into home loan interest deductions under Section 24.

What are Tax Deductions?

A tax deduction reduces the amount of taxes you must pay, in turn, reducing your tax burden. The amount of tax deduction is subtracted from your income, lowering your taxable income. This means that if your taxable income is minimal, your tax liability will also be lower. Property ownership also comes with tax obligations. A person’s real estate revenue is taxed considering their capacity to collect rent if the unit remains unsold.

Under Section 24 of the Income Tax Act, the government offers several home loan reductions to help people buy property at reasonable rates. Tax breaks also motivate people to buy more assets and help them fulfil their dream of becoming homeowners. Home loan interest rates may be as low as 6.65%, and Section 24 offers several reductions even on that.

Deductions on Home Loans under Section 24?

Standard Deduction

Standard deduction accounts for 30% of the determined net yearly value. This is permitted regardless of whether one has spent more or less money on the property. It also does not account for utility and maintenance expenses like power and water supply or insurance. The net yearly value of a self-occupied property is nil, so there is no standard deduction on such properties.

Municipal Tax Deduction

Municipal tax is the yearly sum paid to the local municipal body. Other taxes are calculated on the gross yearly value of the property, which, in turn, is calculated by subtracting the municipal tax from the net value of the property. A deduction on the municipal tax is allowed if the homeowner has paid the municipal tax within that fiscal year.

Interest on a Home loan for real estate is deductible.

If their own family lives in the house, homeowners are eligible for a deduction of up to Rs 2 lacs on the home loan interest. If the house is not occupied, the same rules apply. If the property is rented out, the complete amount of home loan interest is deducted.

Section 24: Special Circumstances

The following special circumstances are also covered under Section 24:

• The owner may claim exemptions for the interest if they do not inhabit the house. The extent of this exemption is not limited.
• If the house is unoccupied because the owner lives in another property (within or outside the city) where their workplace is located, they may only claim a tax credit on the interest up to Rs. 2 lacs.
• The brokerage or commission that must be paid to intermediary agents is not tax deductible.
• To receive the full tax deduction on the home loan interest amount, a person must acquire or complete the construction of the property within three years of taking out the loan. But one can claim a deduction of up to Rs 30,000 instead of Rs 2 lacs if the acquisition or construction is completed after three years.

Section 24: Requirements for Deducting Interest from Income

To be eligible for income tax deductions, a person must fulfil three requirements:

• To utilise the loan for building or buying a home, it must be applied for on or after April 1, 1999.
• One must have an interest certificate for the interest due on the loan obtained.
• The home must be built or bought within five years (three years until the Financial Year 2015–16) after the end of the financial year in which the loan was accepted.

If the borrower applied for a loan to build, buy, rebuild, or repair a house before April 1, 1999, the interest deduction may be capped at Rs 30,000.

Even though the deduction permitted by Section 24 can enable one to reduce their tax liabilities, there are several requirements they should be aware of:

• The only residential properties that qualify for the tax break under Section 24 are those that are fully constructed or those that are bought after the construction is finished.
• The pre-construction interest deduction is only permitted after the work is complete.
• Any tax benefits one earns under Section 24 are lost if they sell the house within five years of ownership.

Conclusion 

Land ownership is one of the most common long-term goals for most Indians. But home loan EMIs heavily deplete one’s income. So, a wise financial strategy is to make the most of the tax benefits that come with home loans. Borrowers of home loans may deduct interest under Sections 80C, 80EE, and 80EEA, in addition to Section 24.

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