Understanding Section 24 of Income Tax: Key Benefits for Home Loan Borrowers

Section 24 of the Income Tax Act offers significant benefits to home loan borrowers, especially those aiming to purchase or construct a house. By understanding its provisions, taxpayers can reduce their tax liability while maximizing savings. This article provides a detailed overview of Section 24, its advantages, and its implications for housing finance.

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What is Section 24 of Income Tax?

Section 24 of the Income Tax Act pertains to the deductions available on the income from house property. It plays a vital role in reducing taxable income, especially for those with a home loan. The section covers two major deductions:

1. Standard Deduction: A flat 30% deduction on the net annual value (NAV) of the property for maintenance and repairs. This deduction applies irrespective of actual expenses incurred.
2. Interest on Home Loan: Borrowers can claim deductions on the interest paid for the home loan under specific limits, making home loans more affordable.

Eligibility for Deductions under Section 24

To avail of benefits, taxpayers must meet the following conditions:

Ownership of the Property

• The individual must own the property.
• Co-owners can claim deductions based on their share in the loan.

Purpose of the Loan

• Loans must be taken for purchasing, constructing, or repairing a house.
• Deductions apply to properties that are self-occupied, rented out, or even vacant.

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Benefits of Section 24 for Home Loan Borrowers

Section 24 provides several financial advantages:

Interest Deduction on Self-Occupied Property

• Taxpayers can claim a deduction of up to ₹2,00,000 annually on the interest paid for loans taken to construct or purchase a house.
• Construction must be completed within five years from the financial year of borrowing.

No Upper Limit for Let-Out Properties

• For properties rented out, there is no maximum limit on interest deduction. However, total loss under the “income from house property” head is capped at ₹2,00,000 for set-off purposes.

Comparison of Section 24 with Section 80C

While it focuses on interest deductions, Section 80C allows deductions on the principal repayment of the loan. Together, they offer comprehensive benefits for home loan borrowers, enabling substantial savings.

Section	Coverage	Maximum Deduction
Section 24	Interest on home loan	₹2,00,000 (self-occupied)
Section 80C	Principal repayment	₹1,50,000

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How to Claim Deductions under Section 24?

Taxpayers need to follow these steps to claim deductions:

1. Maintain Loan Documents: Keep a copy of the loan agreement and interest certificate from the lender.
2. Verify Completion Certificate: Ensure the property construction is complete and secure the necessary documents.
3. Declare in ITR: Claim the deduction in the “Income from House Property” section while filing the income tax return.

Frequently Asked Questions about Section 24

Can I claim deductions if the property is under construction?

You can claim deductions on interest only after the construction is complete. However, you can claim pre-construction interest in five equal installments after the completion.

Are deductions applicable to second homes?

Yes, it allows deductions for multiple properties. For rented-out properties, there is no upper limit on interest deductions.

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Conclusion

This section of the Income Tax Act is a valuable provision for reducing the financial burden of home loans. By understanding its nuances, taxpayers can optimize their savings and reduce tax liability. Whether it’s a self-occupied or rented property, this section ensures substantial benefits for housing finance.

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Vridhi Home Finance provides a range of home loans tailored to meet diverse needs, ensuring affordability and flexibility for all borrowers. With expert guidance, you can seamlessly navigate the benefits and more. Reach out today to make your dream home a reality!