Buying a new home brings abundant joy, comfort, and security to most home buyers. Have you taken out a loan to finance your house as well? If yes, you will be happy to know your Home Loan also comes with many tax rebates.
Section 24 of the Income Tax Act offers tax breaks to those who buy a house. These tax rebates are the government’s way of encouraging buyers to purchase or build a residential property
What is Section 24 Income Tax Act?
The Income Tax (IT) Act 1961 details the exemptions individuals can get on the interest they pay on Home Loans and the income they earn from their residential properties.
If you’re renting a house, then the rent amount is considered income. If you own more than one house, the net annual value of all homes is considered income. If you own one home and live in it, the income from the property is considered nil.
When using a Home Loan EMI Calculator for financial planning, make sure to factor in the tax exemptions to estimate the overall loan cost accurately.
Must Read: How to Avail Home Loans Tax Benefits
Deduction Under Section 24 for Home Owners
Two types of deductions are available under this IT Section:
1. Standard Deduction
All taxpayers are allowed a standard 30% deduction of the net annual value of the property. This deduction is allowed regardless of whether their expenditure is high or low, or if it’s going into electricity, repairs, insurance, or water charges.
If you live in your home, there will be no accrued annual income which takes the standard deduction to zero.
2. Deduction On Interest On Home Loan
Most home buyers will get a Home Loan only if they meet the required home loan eligibility criteria. If you also have a housing loan, you can claim a deduction on the interest component of the loan you pay in a year.
The home loan interest rates vary, and so do the principal and term of all loans. However, you can claim a maximum annual deduction of ₹200,000 regardless of your monthly instalments. You can claim a deduction up to ₹200,000 while computing your taxable income if:
- You and your family live in the home.
- The property is on rent while you live in another rented accommodation in a different city.
- The house is unoccupied or vacant.
How You Can Claim Deductions Under Section 24 of The Income Tax Act
To claim deductions under Section 24, you need to fulfill the following conditions.
- You have taken a Home Loan to purchase or construct a residential property.
- The construction or the purchase is complete within five years from the end of the financial year you take the loan.
- You took your loan after or on April 1, 1999.
Must Read: How to Avail Tax Benefits on a Joint Home Loan
Wrapping Up
Section 24 provides substantial relief and can help you lower the cost of your loan. To make sure none of your forecasts go awry, please use a home loan eligibility calculator to accurately estimate the loan amount you can avail, along with the tax rebates you’re entitled to.
Being aware of taxation rules can help you save a lot of money each year. Research all aspects, including the taxation rules, when you apply for a Home Loan and get the best deal for yourself.
