Living in our own house is a dream that each one of us shares but very few can attain. The sole reason is the high property prices. However, with the help of taking financial aids like loans, people can achieve this dream.
Some people might think taking a loan is a tough task. However, it is very well simplified as you can easily get a home loan from different financial institutions, banks; plus, the government also provides many benefits.
Under the Income Tax Act, many sections allow an individual to get tax exemptions on specific expenditures & investments. And the one that is most talked about in this income tax act is residential property.
Section 24 of the Income Tax Act is one such benefit that the Indian government offers to people who take out home equity loans.
Like we said earlier, housing is the biggest investment a person will make n his lifetime, and even government acknowledges it as the most crucial need and the biggest asset. This is why many investments that you make towards your first property or house are exempted from the tax payment.
Section 24- Income Tax Act
Section 24 of the Indian Income Tax Act associates with the interest that a person pays on their property or home loan. It is a tax benefit that you get to enjoy.
Section 24, generally referred to as “Deductions from income from house property”. The referred deductions that are available are standard deduction and loan interest.
As per this particular section, the income from house property shall be decreased by the amount of interest paid on the loan. The loan taken can be for any housing purpose like construction, purchase, renewal, reconstruction, etc.
Income from house property is applicable in the following exclusive cases:
If the individual is renting out his or her house, then the received rent will be considered as part of his or her income.
If the individual owns more than one house, then the Net Annual Value of all the houses will be considered as his or her income, except for the house he or she is living in.
However, if the individual only owns one property or house and he or she is living in it, then the income from that house property will be considered as NIL.
Tax Deductions Under Section 24 Of Income Tax Act
Under Section 24 of the Income Tax Act, there are two types of tax deductions, namely Standard Deduction and Interest On Loan. To help you understand better, we have explained them below.
This is a tax exemption that is allowed to every taxpayer out there in India. Under this tax deduction, the sum equivalent to thirty percent of the net annual value is exempted from the tax limit.
However, this standard deduction is not allowed if the taxpayer is occupying the only house he or she owns.
Interest On Loan
If the individual has taken a home loan no matter for what purpose, then whatever interest he or she pays on the principal loan amount is spared from the tax payment.
There are a few conditions or sub clauses that come under this category of deduction:
If the loan is taken for a property in which the individual resides then he or she can claim the exemptions of up to two lakh rupees.
Conditions to claim Rs.2 lakh tax exemption:
- The home loan should be taken on or after April 1, 1999.
- The home loan should be taken for the construction or purchase of a property.
- The construction or purchase for which the loan is taken should be completed at least within five years from the financial year’s end in which the home loan was taken.
- If these conditions are not met then the individual’s tax rebate on home loan interest cannot be more than thirty thousand rupees.
If the purpose of the loan was for the reconstruction or renovation of the property or house, then the individual cannot claim the exemption until the renovation is completed.
If the loan was taken for the construction or purchase of the property before the actual purchasing or completing the construction, then the individual can claim the interest.