Section 24 of Income Tax Act

What is Section 24 Income from House Property?

For most Indians, buying a house is one of the most common long-term investment aspirations. The EMI on a home loan consumes a significant portion of one’s revenue. So, under Section 24 of the Income Tax Act, the government has provided a plethora of tax benefits for residential property. Section 24 does not work as an indepedent section of the income tax act, but the provisons of section 24 have been carried from the income tax act 1964, into all the succeeding acts.

You probably know that you can earn money by renting your property. You may not know that the Income Tax Act allows you to get attractive deductions on real estate income which are provided under section 24 of the IT act. This results in a more effective tax rate than a rental income than a standard tax on ordinary wages such as income and business.

Under the Indian Income Tax Act, income from goods is considered taxable. Taxes are levied on any income received through the property, residential or industrial use. The building may include a residence, office building, shop, factory, hall, etc., and any land associated with the building (e.g., garden, building, playground, car park, etc.).

Income from property is one of the few sources of income where the borrower must pay taxes on actual income and own rental property in some cases as provided in section 24. Leases considered are based on an assessment of the income of the asset that it can earn.

Income from private property, leased property, and income recognized from the vacant property (including houses), with the exception of one dwelling house, is taxable under the heading “Income from the property.”

How is the Gross Annual Value of a property calculated?

The Gross Annual Value (GAV) of the property is rated as the highest of these two figures:

Rent received or not received from the building during the year.

Fair Market Value (FMV): Rent where the property can expect to earn annually based on a rental of similar properties nearby

The only exception to the above figure where fair or high market value can be considered GAV is when the lease on the property is lower because the asset remained vacant for a whole year or part of the previous year. Also, the fair market value cannot exceed the amount adjusted by a standard lease agreement.

How is the Net Annual Value of a property calculated?

As various section including section 24, the total annual value of the property is calculated after deducting the rates and excluded rent, if applicable, from the Annual General Property of the property. However, admission of any excluded tax will be taxable on the year in which it is received.

What are the deductions available under Section 24?

Section 24 in the Income Tax Act allows for two exempted exemptions from a property NAV to meet its annual tax value:

(i) A general deduction for repairs and maintenance of property equal to 30% of the total annual value after deduction of rates is permitted as a deduction whether the amount spent on the property is higher or lower than this value. For personal property, where the annual value of the property is considered nil, standard deductions are not permitted.

(ii) Derecognition of interest paid on a home loan on a site of purchase/construction/repairs: These deductions are available for all categories of property, whether leased or regarded as leased or separately, however the difference in the allowable rental or lease value.

Deductions for Rent or Consideration to be in the rental area

Interest on loans for acquisition / construction / repair / restructuring of property is 100% taxable. If the interest payable exceeds that of NAV, the taxpayer can rectify the reported loss against other heads of income (thereby reducing the total tax liability) or continue the loss for up to 8 years by adjusting taxable income for future years.

An annual interest rate of usually up to ₹ 2,00,000 / – (₹ 3,00,000 seniors) may be claimed as a general deduction from income, thus allowing the taxpayer to report irreparable losses on other incomes or forward payments for 8 years. However, if the construction of the house is not completed within three years of receiving the loan, the tax deduction is reduced to ₹ 30,000.

How is the Annual Taxable Value of a property calculated?

As various section including section 24,The annual value of the property is calculated after deducting any exemption granted under Section 24 in the Net Annual Value of the property. This is the amount of tax that a taxpayer pays.

What are the situations in which the annual value of a property can be nil?

As per section 24, he annual value of the asset will be void if the asset goes to its owner, and he does not receive any financial benefit from it. Apart from this, if the owner owns property in another city and lives in a rented house in another city for the purpose of rent, the annual fee will be deemed to be the same.

Illustration: Mr. A owns a house and earns ₹ 18,000 a month rent. He paid ₹ 1,000 as Municipal rates during the year and paid ₹ 50,000 as interest on the mortgage he took to buy the property. The annual taxable amount will be calculated as below:

What is meant by deemed owner?

As per section 24, a deemed owner is considered a person who receives income from renting a house but is not legally registered as a real owner. For example, if a person transfers his or her household goods to his or her spouse (not in terms of a divorce agreement) or to his or her minor child (who is not a married daughter) without consideration of money, the person will be considered the owner.

What is a composite rent?

The homeowner may decide to rent his or her home and other necessities, such as a sofa, a bed, kitchen utensils, air conditioners. In this case, the tax levied by the owner will include the cost of the property he provides and the house/building. Leases acquired will be considered a combined rental.

What are some tips to save tax on property income?

• It is advisable to take property with a joint name in the event that your spouse is a leading member, and the annual interest rate on a home loan is estimated to be more than ₹ 2,00,000. Owners of joint properties may require a standard deduction of up to ₹ 2,00,000 each.
• Please remember to claim interest paid during construction after construction is completed. Interest paid on the construction of the asset may be claimed in five installments equal to five financial years upon completion of the acquisition of the asset.
• If you already have a destination and wish to avoid paying rent for a second home, you can easily register a second property in your wife’s name or the name of your relative. This way, you can avoid being overpowered.
• Even if you have two houses, one living alone and the other unoccupied, you will have to pay property taxes based on the fair rental value of your unused house. Therefore, it is better to rent your second house to maintain normal cash flow and reduce the tax burden.
• In though you own a lot of lands, you can include that place with a much higher rental price as you are personally engaged in reducing your tax burden. A taxpayer is allowed to choose any house as his or her residence regardless of how it is used.

Budget Highlights 2021

Taxation Related

• Citizens over the age of 75 with pensions and interest income have now been freed from filing Income Tax Returns.
• Vacation holiday for affordable housing projects extended for one year until March 31, 2022.
• The start-up tax holiday has increased for another year until March 31, 2022.
• Divorce payments to REIT (real estate investments trust) and INVIT (infrastructure investment infrastructure) have been released from Tax deduction at source(TDS).

Tax Assessment and Filing Related

• Details of income and interest from banks, post offices, etc. It will be completed first to facilitate the completion of the IT return.
• The National Court of Appeals for the Income Taxes will be appointed by individual taxpayers.
• The Dispute Resolution Committee will be made up of small taxpayers.
• The deadline for reopening income tax cases has been reduced from 6 years to 3 years.

Savings Related

• Late donations to employee provident fund (EPF) by an employer for employees will not be allowed as a deduction from the employer.

Others

• The budget of Rs. 35,000 crores have been assigned Covid-19 drugs.

FAQS on Income Tax Section 24

✅ What is the rebate in income tax?

A tax rebate is a tax return for a taxpayer when he or she pays more tax than he or she is used to. Therefore, if in the financial year, a person pays more tax and the tax is refunded to them at the end of the financial year. Section 87A of the Income Tax Act provides for a tax rebate of up to ₹ 12,500 if the total amount of tax after deductions reaches ₹ 5 Lakh.

Section 80C also provides for a tax rebate on certain investments and costs such as capital loans, registration, and labor costs stamps and for PPF and FDs to save taxes, among others. According to this section, a discount of ₹ 1.50 Lakh can be obtained for more information related to Section 24; contact Dialabank at 9878981144. 

✅ How can I get a tax rebate?

To get a tax rebate, all citizens are required to meet the rebate conditions for any income category then they become eligible for deductions under section 80C and section 87a. The rebate is refunded when the taxpayer finds out that he or she has paid more tax in the form of the security for which he or she fell, as he or she is required to complete tax returns and verify the calculation of taxes. A person can get a discount by withdrawing from a source or while completing your ITR.

✅ What do you mean by tax rebate? 

A tax rebate is a tax return on a taxpayer who pays more tax than they are obliged to do as per the income tax slab rates. Tax rebates reduce the tax burden on individuals. However, this can be demanded by making reasonable costs and investments.

✅ What are the tax exemptions for 2019?

Tax exemptions allow taxpayers to save taxes. According to the 2019 budget, exemptions from income tax can be obtained under a number of grants, such as the rental rent of the House; travel expenses; children’s tuition fees; exemption from mortgage loans in terms of section 80C; exemptions from investments and costs such as public provident fund(PPF), National Savings Certificate, tax savings, credit card account, and PPF In addition, section 80D provides for the reduction of medical insurance, section 80E allows for higher education loan deductions, reductions in contributions in terms of section 80G and tax on rented house.

✅ What is section 24 in income tax?

Section 24 in the Income Tax Act deals with the deduction of income from a house or building by providing exemptions from interest rates paid on the property or a home loan. In terms of section 24C, a person may claim a tax deduction of up to ₹ 2 Lakh on interest paid on a home loan. In addition, this section allows for the claim of tax revenue even if it is a loan taken to build property. However, interest deductions for construction loans can be obtained in five stages.