Deduction On Home Loans Under Section 24

Many people dream of owning their own home but prices are constantly rising. Therefore, it is hard to purchase a house without a home loan. Getting a home loan from a bank or other financial institution is easy. But home loans have high monthly payments (EMI). A home loan interest deduction under Section 24 of the Income Tax Act covers tax breaks or deductions for home loan interest. These deductions can greatly help people who want to take a home loan to purchase a home and secure their future.

What Is Home Loan Interest Deduction Under Section 24

Section 24 of the Income Tax Act of 1961 considers the amount of interest a person pays on a home loan. This is also sometimes called deductions from income from house property. It lets you claim your home loan interest deduction under section 24. Under Section 24, the most you can deduct from your income tax is Rs. 1,500,000 and you do not have to live in that house to get a tax break. In the following situations, the income from a house is considered for tax deductions:

• If you rent a house, the amount you receive is income. 
• If you own more than one house, the annual net value of all of them is counted as your income.

But if someone only has one house and lives in it, the income from that house is considered to be zero.

Types of Home Loan Interest Deduction Under Section 24  

Under Section 24 of the Income Tax Act, there are two kinds of tax breaks:

1. Standard Deduction
   Under this section, 30% of the net annual value (NAV) is deducted from your income tax as a standard deduction. But this deduction does not apply to a home that the owner lives in.
2. Home Loan Interest Any amount of property that is bought, fixed, built, reconstructed or rebuilt is exempt from paying taxes. So, if a home loan is taken out to do any of these things, the interest on the home loan is not taxed and can be deducted under Section 24.

Here are a few important points to know about home loan interest deduction under Section 24:

• You can get up to Rs. 2 lakh in deductions if the home loan is for a self-occupied home.
• If you take a home loan for the purchase or construction of real estate (not renovation), you can still reclaim the interest. You can deduct pre-completion interest in five equal payments, starting in the year you buy or finish construction.
• If the home loan was taken out to fix or rebuild a house, you cannot get a tax break until the work is done.

To take advantage of this home loan interest deduction under Section 24, you must figure out the interest you have to pay the bank or financial institution. Even if you have not paid the money to the lender yet, you can still get a tax break for the entire annual interest.

Conditions to Claim Home Loan Interest Deduction Under Section 24

These are the conditions that people will be able to claim a home loan interest deduction under Section 24:

1. Tax Deduction up to Rs. 2,00,000

• The taxpayer must use borrowed money to buy, build, fix, renew or rebuild the property.
• You took out a loan on or after April 1, 1999.
• You must buy or build the property within five years of the end of the fiscal year in which you borrowed the money.
• The taxpayer must first obtain a certificate from the lending institution to file a claim. The certificate must state how much interest the taxpayer has to pay to buy or build the house. It is not difficult to get this certificate which is typically issued by the bank or financial institution once a year at the start of the loan period. 
• If you rent out the property, you can deduct the interest under Section 24.

2. Tax Deductions up to Rs. 30,000

• If any of the above conditions are not met, you can still deduct up to Rs. 30,000 in interest.
• The loan must be taken out before April 1, 1999, and it must be used to build, buy, fix or rebuild a home.

3. Pre-Construction Deduction

• Pre-construction interest deductions are capped at Rs. 2 lakh, like post-construction.
• You cannot use the deduction if you use the home loan to fix or rebuild something.
• Each financial year, you can claim the deduction in 5 equal parts. The first payment comes in the same year the house is bought or construction is finished, whichever comes first.

Exceptions For Home Loan Interest Deduction Under Section 24 

Here are the exceptions for a home loan interest deduction under Section 24:

• If the owner does not live in the house, they can get a tax break for the whole interest payment and this exemption has no maximum limit.
• If the owner does not live in the house due to their job and lives in a rented home in their job location, they can get a tax break on the interest payment, but only up to Rs. 2 lakhs.
• To find a tenant or loan, you must pay no tax break for commissions or brokerage fees.
• The person who took out a home loan must have a certificate of interest.
• A person should buy or finish building a home within three years of getting a home loan to get a tax break on the loan’s interest amount. But if the purchase or building is not done within three years, Rs. 30,000 can be deducted instead of Rs.2 lakhs.

Conclusion

Many people want to own their own homes. Therefore, knowing the different tax relief programmes might assist in organising taxes better. Section 24 of the Income Tax Act helps people save on home loan interest. So, if you plan to get a home loan, do not forget to take advantage of tax breaks. Piramal Finance is a great option if you are looking for similar articles that offer in-depth information and guidance on home loans and more.