The Indian government introduced the Income Tax Act in 1961, which lays down the regulations for paying income tax in India. The Act has undergone several amendments since its introduction to keep up with the changing financial landscape of the country. Section 24 of the Income Tax Act is one such amendment that relates to the deduction of interest on home loans. Let’s take a closer look at what this section means and how it can benefit taxpayers.
What is Section 24 of the Income Tax Act?
Section 24 of the Income Tax Act allows taxpayers to claim a deduction on the interest paid on home loans. This deduction is available to individuals who have taken a home loan to buy, construct, repair, or renovate a property. The section applies to both self-occupied and rented-out properties.
The deduction can be claimed on the interest paid during the financial year (April 1 to March 31) in which the property is acquired or constructed. In the case of a self-occupied property, the maximum deduction that can be claimed is Rs. 2 lakh per annum. However, if the property is rented out, there is no upper limit on the amount of interest that can be claimed as a deduction.
How does Section 24 benefit taxpayers?
Section 24 of the Income Tax Act is a significant benefit for taxpayers who have taken a home loan. By allowing a deduction on the interest paid, it reduces the overall tax liability of the taxpayer. For instance, let’s assume that you have taken a home loan of Rs. 50 lakhs at an interest rate of 8% per annum. In the first year of the loan, the interest paid would be Rs. 4 lakhs. With the deduction of Rs. 2 lakhs under Section 24, the taxable income would be reduced by that amount, resulting in a lower tax liability.
Moreover, the deduction under Section 24 is allowed in addition to the deduction of principal repayment under Section 80C of the Income Tax Act. Section 80C allows taxpayers to claim a deduction of up to Rs. 1.5 lakhs on the principal repayment of the home loan. Therefore, taxpayers can claim a deduction of up to Rs. 3.5 lakhs (Rs. 2 lakhs under Section 24 and Rs. 1.5 lakhs under Section 80C) in the first year of the loan.
In conclusion
Section 24 of the Income Tax Act is a beneficial provision for taxpayers who have taken a home loan. It allows for a deduction on the interest paid, which reduces the overall tax liability of the taxpayer. Moreover, the deduction can be claimed in addition to the deduction of principal repayment under Section 80C of the Act. Therefore, taxpayers who have taken a home loan should make use of this provision to reduce their tax liability and increase their savings.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
Q1. What is Section 24 of the Income Tax Act?
Section 24 of the Income Tax Act allows taxpayers to claim a deduction on the interest paid on home loans. This deduction is available to individuals who have taken a home loan to buy, construct, repair, or renovate a property.
Q2. Can I claim a deduction on the interest paid on a personal loan taken for home renovation?
No, the deduction under Section 24 is available only for home loans taken to buy, construct, repair, or renovate a property. Personal loans taken for home renovation do not qualify for this deduction.
Q3. Is the deduction available only for self-occupied properties?
No, the deduction under Section 24 is available for both self-occupied and rented-out properties.
Q4. What is the maximum amount of deduction that can be claimed under Section 24?
For a self-occupied property, the maximum deduction that can be claimed is Rs. 2 lakh per annum. However, if the property is rented out, there is no upper limit on the amount of interest that can be claimed as a deduction.
Q5. Can I claim a deduction for interest paid during the construction period of the property?
Yes, the deduction under Section 24 is available on the interest paid during the financial year in which the property is acquired or constructed.
Q6. Can I claim a deduction for the interest paid on a loan taken from a friend or relative?
No, the deduction under Section 24 is available only for the interest paid on a home loan taken from a bank, financial institution, or any other registered lender.
Q7. Can I claim a deduction on the interest paid for a second home?
Yes, the deduction under Section 24 is available on the interest paid for a second home as well, whether it is self-occupied or rented-out.
Q8. Can I claim a deduction on the interest paid on a loan taken for a commercial property?
No, the deduction under Section 24 is available only for the interest paid on a home loan taken for residential properties.
Q9. Can I claim a deduction on the interest paid on a loan taken for a joint property?
Yes, if you are a co-borrower in a home loan, you can claim a deduction on the interest paid in proportion to your share in the loan.
Q10. Do I need to submit any documents to claim the deduction under Section 24?
Yes, you need to submit the interest certificate issued by your lender, which shows the interest paid during the financial year. This certificate is generally issued at the end of the financial year or on request.
