Section 24 - Tax Deductions From House Property Income

There are various deductions that can be claimed against income from house property. Popular deductions are as follows:

• Standard deduction claimed at 30% of the annual value.
• Municipal taxes paid during the year - even if it pertains to preceding years.
• Interest due on home loan, for construction or repairs of the house 
  • When it is for construction, a deduction of up to Rs. 2 lakhs is allowed for self occupied property and whole of the interest due is allowed for a let out property.
  • When the loan is taken for repairs, up to Rs. 30,000 deduction can be availed.
• Principal paid on home loan under section 80C.
• Additional deduction on interest paid on loan for first home buyers - section 80EE (Rs.50,000) and section 80EEA (Rs. 1.5 lakhs).

Income from House Property

The following income will be taxable under the head ‘Income from House Property’ of the Income-tax Act, 1961.

• Rental Income earned on a let-out property
• Annual value of a property which is ‘deemed’ to be let out for income tax purposes (excess properties will be considered as let out properties when you own more than two house property)

• The annual value of a property is the expected rental income if the property is rented out.
• The annual value of a house property can be zero or even be negative if the interest on a home loan is claimed as a deduction in case of a self-occupied property.
• If you have more than two house properties, then excess house properties which are not let out shall be treated as deemed to be let out property and the notional rent is taxable.

If the property is let out, the rent received is your Gross Annual Value (GAV). For a deemed to be let-out property, the reasonable rent of a similar place is your Gross Annual Value.

Deductions Under House Property

Municipal Tax 

• Municipal taxes are the annual amount paid to the municipal corporation of that area. 
• Municipal taxes are to be deducted from the Gross Annual value to derive the Net annual value of the house property. 
• Deduction of municipal tax is allowed only if it has been borne by the owner and paid during that financial year. 

Standard Deduction

• Standard Deduction is allowed 30% of the Net Annual Value calculated above. 
• This 30% deduction is allowed irrespective of incurring expenditure on  insurance, repairs, etc,. 

Interest on Home Loan

• House Property owners can claim a deduction of up to Rs.2 lakh on their home loan interest if the owner resides in the house property. 
• The same treatment applies when the house is vacant. 
• If you have rented out the property, the entire interest on the home loan is allowed as a deduction. 

Your deduction on interest is limited to Rs.30,000 if:

• The home loan is for the repairs, renovation or reconstruction of a property;
• The purchase or construction is not completed within 5 years from the end of the financial year in which the loan was taken.

Pre Construction Interest 

• Pre-construction interest is the interest incurred during the construction phase of the house property. 
• The interest incurred during the construction phase is not allowed as a deduction in those years. 
• It is accumulated and allowed as a deduction after the construction is completed.
• Deduction can be claimed in 5 equal instalments from the year in which construction is completed. 
• For example, if the construction of your property was completed in FY 2024-25 on 25 June 2024. you can claim 1/5th of the interest paid up until 31 March 2024 in your Income Tax Return for FY 2024-25 to FY 2029-30. 
• This deduction is allowed only for fresh construction of a house property. This is not allowed in the case of a loan for repairs or renovation works. 
• The total amount of pre-construction interest and interest on a housing loan that can be claimed in a year in case of a self-occupied property should not exceed Rs 2 lakh in any case.

Note: 

• Under the New tax regime, deduction is not allowed for interest on loans for self-occupied property.
• For let-out property, deduction is allowed with no ceiling limit for loan interest irrespective of the tax regime you choose.

Section 80EE and 80EEA

Further, if you have availed the loan for a residential house property during the period between 01-04-2016 to 31-03-2017, you can claim up to Rs.50,000 under Section 80EE over & above the above limit provided under Section 24.

Similarly, if you have borrowed a loan during the period between 01-04-2019 to 01-04-2022, you can claim up to Rs.1,50,000 under Section 80EEA over & above the above-provided ceiling limit of Rs.2,00,000.

Principal Paid on Home Loan

• Further, Section 80C allows a deduction if you have made any principal repayment of a loan for your house property, including a payment of stamp duty, and registration charge.
• No deduction can be claimed if the loan is availed for repairs, renovation or reconstruction.
• Deduction on principal repayment is not allowed under the new tax regime. 

Who Can Claim Deductions Under Section 24?

Individuals owning a residential property that generates rental income or is self-occupied are eligible to claim deductions under Section 24.

• Home loan deduction and HRA benefit, both can be claimed by the tax payer on satisfaction of a few conditions.

Computation of Income Under House Property

Say, a person repays a housing loan of Rs 4 lakh annually out of which Rs 2 lakh is the interest component. He has also incurred a pre-construction interest of Rs 3 lakh. He is earning Rs 7,000 monthly from a let-out property and also pays municipal taxes of Rs 3,000 for the house. Let’s calculate his Income from house property in both the scenarios: 

(1) The property is self-occupied property, or (2) The property is rented out

Remember, the maximum loss from the head house property that you can set-off against income from other heads is limited to Rs 2 lakhs. The remaining loss can be carried forward to future years – 8 years in total. However, in these 8 years, it can only be set off from income from house property.

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Example of claiming deductions under the following scenario:

Mr. X has 3 house property, 2 are self-occupied and the other one is offered for rent. Interest paid on a home loan of both the self-occupied properties is Rs 3.00 lakhs and interest paid on let out property is Rs. 2.5 lakhs. What all deductions can be claimed by him under house property income?

• Self-occupied properties:
  • Mr. X can claim two property as self-occupied properties with annual value as Nil. 
  • Mr. X can claim a maximum of Rs. 2 lakh of the aggregate deduction (for both the self-occupied properties) against actual home loan interest paid of Rs 3 lakh.
  • As the annual value of self-occupied properties is considered nil, income from house property income will become negative after claiming home loan interest.
  • This negative amount can be set off against other income of the current year.
  •  Also, the loss amount can be carried forward for the next 8 years which can be set off against future house property income only. 
     
• Rented property:
  • In the case of rented property, actual rent received or receivable will be considered as a ‘ Gross annual value’
  • Deductions like municipal taxes paid, actual interest on housing loan (no ceiling limit for claiming interest on let out property) will be allowed as deduction. 
  • Standard deduction of 30% of net annual value can be claimed as a deduction.
  • Here, Mr. X can claim actual home loan interest paid of Rs. 2.5 lakh as a deduction for the let out property.

Mr. X can also claim a deduction of up to Rs. 1.5 lakh for principal repayment under section 80C which will be the aggregate of all home loan repayments.