Section 24 of Income Tax Act 1961-The Deciding Factor Between Old Vs New Tax Regime
Owning a house is like a dream for everyone, especially in India. This is considered a big-ticket purchase. Therefore, to make this dream a reality, the Government provides a standard deduction under section 24a.
It also offers a home loan tax benefit under section 24b of the Income Tax Act,1961, to homeowners.
Section 24 of Income Tax Act 1961 basically deals with the accrual of income from house property. Section 24 of the IT Act has been enacted to allow homeowners to avail of maximum home loan tax deductions.
This is possible while they invest a substantial amount in owning a home. They can also deduct the interest paid on their home loan. Thus, it would not be very wrong if I say that G.O.I help indirectly to the homeowners to ease the pain of having a big-ticket purchase.
Section 24 of Income Tax Act 1961
Section 24 of the IT Act 1961 is related to income from house property and tax benefit on home loan. This Act is a combination of two sections i.e. Section 24(a) and Section 24(b).
After the budget 2020, Section 24 of the Income Tax Act plays a significant role in deciding the tax regime. It helps to determine whether the Old or New regime is beneficial for you.
When you are choosing the tax regime for filing income tax return, you must understand Section 24 of the I.T Act, 1961. This knowledge is crucial for reducing your overall income tax liability.
You May Read The Following:
Standard Deduction Under Section 24a for computation of Income from House Property
- Deduction Under Section 24a:
Section 24a deals with the deduction from the Net Annual Value(NAV) while computing income from house property.
Section 24 allows an income tax rebate on a home loan. It also permits a standard deduction from the Net Annual Value (NAV) if you have rented out your residential property.
Points to Remember:
- Income from the house used for own residential purpose is considered as NIL. You cannot claim rent on the self-occupied house.
- For let out property, rental income is charged as Income From House Property.
- For more than one self-occupied house property, the Net Annual Value is taxable under the head Income From House Property.
For a let-out property, the homeowner receives rent. Section 24a allows a deduction of 30% from the Net Annual Value. This deduction applies to expenses incurred by the assesses.
Standard deduction @30% is allowed on logical grounds and therefore, no further expenses are permissible for deduction under this head.
Before knowing the computation of Income from House Property, the following points are worth knowing.
- Annual Value: Annual value is the reasonable rent a property can earn if it’s let out. This capacity is measured during the year. Income from house property is calculated based on the annual value.
- Municipal Value: This value comes from the Municipal Corporation. It is followed as the minimum rent to be earned from a rented property. This is determined by the Municipal Authorities.
- Fair Rent Value: This value can be determined by evaluating the rent fetched by other similar properties. You can also consider the rent receivable in the same or similar locality/area.
- Standard Rent: Standard rent is the maximum rent a landlord can legally recover from his tenant. This amount is prescribed by the Rent Control Act.
- Actual Rent Received: The actual rent amount that the homeowner has received from the tenant.
- Computation of Gross Annual Value (GAV): Gross Annual Value is the highest value determined from the following three elements:
- Municipal Value
- Fair Market Value
- Actual Rent Received
Computation of Income from House Property
Example: Sri Amit Vyas has let-out his residential property for the A.Y 2025-26 on a monthly rent of Rs. 40,000/-. The Municipal Value is Rs.5 Lakh. The Fair Rent of the property is Rs. 4.50 Lakh. Standard Rent is Rs. 4.75 Lakh. Municipal Tax paid Rs 50,000/-. Compute his total Income From House Property.
Computation of Income From House Property (Rs. in Lakh)
| Municipal Value (A) | 5.00 |
| Fair Rent (B) | 4.50 |
| Actual Rent Received (C) | 4.80 |
| Higher of above three (A), (B), (C) – (D) | 5.00 |
| Standard Rent (E) | 4.75 |
| Gross Annual Value – Lower of (D) and (E) | 4.75 |
| Less: Municipal Taxes Paid | 0.50 |
| Net Annual Value (NAV) | 4.25 |
| Less: Standard Deduction U/S 24a @ 30% of NAV | 1.28 |
| Income from House Property | 2.97 |
Computation of Home Loan Interest Deduction
Home Loan Interest Deduction
Section 24b of Income Tax Act-Home Loan Tax Exemption
Section 24b of the Income Tax Act 1961 deals with the home loan tax benefit. To reduce the burden of paying interest on housing loans, Section 24b provides a deduction. This deduction comes in the form of a tax benefit.
This is applicable on a home loan while computing the Income from House Property. The deduction is allowed if the following conditions are satisfied.
Criteria for Home Loan Tax Benefit Deduction Under Section 24b of Income Tax Act
The following criteria must be satisfied in order to be eligible to get a home loan tax exemption.
- Purpose of Loan: The home loan must be taken for the purchase and/or construction of the residential property only. The purchase or construction must be for a residential property, whether for self-use or for letting out, but not for a commercial purpose;
- Loan date: The loan has to be taken on or after 1st April 1999;
- Completion: The purchase or the construction of the house for which the home loan has been taken must be completed within 5 years from the end of the financial year in which the loan was taken;
- Ownership: The house must be registered in the name of the assessee singly or jointly with others. It means the assessee must be an owner or co-owner;
Amount of Home Loan Tax Benefit as per Section 24b of Income Tax Act
- Rs.30,000/- If the above conditions are not satisfied: According to Section 24 of the Income Tax Act, the interest on housing loan deduction is limited to Rs. 30,000/- in a financial year. This applies if all of the above conditions are not satisfied.
- Rs. 2,00,000/- when all conditions are met: Maximum deduction under section 24b, one can avail is Rs.2,00,000/- in a financial year when all the above conditions are met. This tax benefit on a home loan is applicable both for the self-occupied and let-out property. Earlier, for the let-out property, there was no limit on the income tax exemption. It pertained to the interest payment on a house building loan. But now, it is capped to Rs.2.00 Lakh only.
- Pre-construction period interest: The home loan tax exemption is available for five years from the year the construction is completed. This applies to interest paid before construction or taking possession of a residential flat. The exemption is equal to one-fifth of the maximum limit of Rs. 2 lakh per year.
Income Tax Rebate on Home Loan U/S 80EEA
In 2019, the government planned a mission to provide housing for all by 2022. To achieve this, they introduced Section 80EEA, offering additional home loan tax benefits to first-time homebuyers participating in affordable housing schemes.
In the budget 2020, this tax benefit has been extended up to 31.03.2021. This means loans taken up to 31.03.2021 is now eligible to claim deduction under this section.
According to Section 80EEA, first-time home buyers can now avail of additional home loan tax benefits. They can get a benefit of Rs.1.50 Lakh in a year.
This is over and above the limit of Rs.2 Lakh as envisaged under Section 24b of Income Tax Act if the following conditions are satisfied.
Conditions for Tax Benefit on Home Loan U/S 80EEA
First time home buyer: Before taking a loan under the affordable housing scheme, the borrower must not own any other house. The buyer should be new to owning property. The borrower should not have any other property in their name. The property must not be in his name. So, to claim deduction U/S 80 EEA, you need to be a first-time home buyer;
Loan sanction period: To claim deduction under this section the loan must be sanctioned between 01.04.2019 to 31.03.2021 only;
Who can claim: Only an individual assessee can claim a deduction under this section.
Loan taken from: Section 80EEA allows an income tax rebate on a home loan. This applies only when the loan is borrowed from banks. It also applies when borrowed from financial institutions only. Loan from others is not permitted here for tax exemption.
Interest amount: The Maximum amount of additional deduction that can be availed of is Rs. 1.50 Lakh, which is over and above the tax benefit on home loan U/S 24b.
Property Registered value: The most important condition of this section is the stamp value limitation. The stamp value of the property should not exceed Rs. 45 Lakh. If it exceeds the value as notified, the home buyer is not eligible to claim a deduction under this section.
Income From House Property Problems And Solutions
Example: Sri Vinay Pathak has let-out his residential property for the A.Y 2025-26 on a monthly rent of Rs. 50,000/-. The Municipal Value is Rs.6.50 Lakh. The Fair Rent of the property is Rs 5.50 Lakh. Standard Rent is Rs. 5.25 Lakh.
Municipal Tax paid Rs. 60,000/-. Interest on home loan paid Rs. 2,30,000/-.Compute his total Income From House Property, considering the house is (a). self-occupied and (b). a let-out. Also, compute the interest amount U/S 80EEA if the loan is taken between 01.04.19 to 31.03.21.
Computation of Income From House Property (Rs. in Lakh)
| Type of House Property | Self-Occupied | Let Out |
| Municipal Value | NIL | 6,50,000 |
| Fair Rent | NIL | 5,50,000 |
| Actual Rent Received | NIL | 6,00,000 |
| Higher of above three (A) | NIL | 6,50,000 |
| Standard Rent (B) | NIL | 5,25,000 |
| Gross Annual Value (Lower of A and B) | NIL | 5,25,000 |
| Less: Municipal Taxes Paid | NIL | 60,000 |
| Net Annual Value (NAV) | NIL | 4,65,000 |
| Less: Standard Deduction (30% of NAV) | NIL | 1,39,500 |
| Income Chargeable to Tax (NAV – SD) | NIL | 3,25,500 |
| Less: Interest Paid on Home Loan (Max ₹2L U/S 24b) |
(2,00,000) | (2,00,000) |
| Total Income from House Property | (2,00,000) | 1,25,500 |
| Home Loan Tax Benefit Deduction (Sec 24b) | 200,000 | 200,000 |
| Additional Benefit U/S 80EEA (Loan within 01.04.19 – 31.03.21) |
30,000 | 30,000 |
Section 24 of Income Tax Act 1961-The Deciding Factor Between Old Vs New Tax Regime
As you all know that as per the Budget 2020, one can choose between the tax regime i.e. old and new, in which one wants to file their income tax return. Once chosen can not be changed in that financial year. Next year again you can choose your preferred tax regime.
If you choose the new tax regime, you have to forgo all income tax deductions here. Income tax deductions are only allowed in the old tax regime.
Study thoroughly to understand that Section 24 of the Income Tax Act 1961 plays a decisive role here. The old tax regime is beneficial for income up to a certain level and vice-versa.
While deciding which tax regime to choose, consider the deduction under Section 24 of the Income Tax Act. I will show you a comparative study between the two different tax regimes below.
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