Section 24 of Income Tax Act: A Comprehensive Guide for Taxpayers

 

Section 24 of the Income Tax Act, 1961 is a provision that allows taxpayers to claim a deduction for interest paid on housing loans. This deduction is available for both self-occupied and let-out properties.

Eligibility for deduction under Section 24

To be eligible for deduction under Section 24, the following conditions must be met:

·        The taxpayer must be the owner of the property for which the housing loan has been taken.

·        The housing loan must have been taken from a financial institution approved by the Central Government.

·        The housing loan must have been used for the purchase, construction, repair, or renovation of the property.

·        The property must be situated in India.

Quantum of deduction

The quantum of deduction under Section 24 depends on the following factors:

·        The type of property (self-occupied or let-out)

·        The financial year in which the interest was paid

·        The amount of interest paid

Self-occupied property

For self-occupied properties, the maximum deduction that can be claimed is Rs. 2 lakhs. However, if the taxpayer has paid more than Rs. 2 lakhs in interest, the excess amount can be carried forward and claimed in the subsequent financial years.

Let-out property

For let-out properties, the maximum deduction that can be claimed is the actual amount of interest paid, without any limit.

How to claim deduction under Section 24?

To claim deduction under Section 24, the taxpayer must furnish the following information in their income tax return:

·        The name of the financial institution from which the housing loan was taken.

·        The loan account number.

·        The amount of interest paid during the financial year.

Additional information required for let-out properties

In addition to the above information, taxpayers who have let-out properties must also furnish the following information in their income tax return:

·        The gross annual value of the property.

·        The amount of rent received during the financial year.

·        The amount of municipal taxes paid during the financial year.

Benefit of deduction under Section 24

The deduction under Section 24 can help taxpayers to reduce their taxable income and save tax. This is especially beneficial for taxpayers who have high-income levels.

Examples

Example 1:

Taxpayer A has taken a housing loan of Rs. 50 lakhs to purchase a self-occupied property. The interest rate on the loan is 10%. In the financial year 2022-23, Taxpayer A pays Rs. 5 lakhs in interest.

Taxpayer A can claim a deduction of Rs. 2 lakhs under Section 24 in the financial year 2022-23. The remaining amount of interest (i.e., Rs. 3 lakhs) can be carried forward and claimed in the subsequent financial years.

Example 2:

Taxpayer B has taken a housing loan of Rs. 1 crore to purchase a let-out property. The interest rate on the loan is 10%. In the financial year 2022-23, Taxpayer B pays Rs. 10 lakhs in interest.

Taxpayer B can claim a deduction of Rs. 10 lakhs under Section 24 in the financial year 2022-23.

Conclusion

Section 24 of the Income Tax Act is a valuable provision that can help taxpayers to reduce their taxable income and save tax. Taxpayers who are eligible for deduction under Section 24 should make sure to claim it in their income tax return.