Section 24 of Income Tax Act Home Loan Deduction

Section 24 of the Income Tax Ac deals with Deduction on Home Loan Interest. Section 24 is one of the popular Income Tax Sections currently in use due to its universal application. In short, What ever income you obtain from your House Property, Such Income can be reduced by the amount of Home Loan Interest you pay to the bank. Section 24 specifies a limit on this deduction. The maximum deduction an Asseesee is eligible under section 24 of the income tax act, 1961 is Rs.2,00,000. Below, we have provided a detailed analysis of Section 24 and all FAQs on this topic.

Deduction from Annual Value u/s 24

While computing the Deduction under section 24, There are basically two deductions that we can make from the Annual Value computed (We have provided the computation of Annual Value below).

  1. 30% of NAV; and
  2. interest on borrowed capital

Section 24(a) – 30% Standard Deduction

30% of Net Annual Value (NAV) is allowed as a Deduction under section 24(a). This is a Standard(flat) deduction and therefore is allowed irrespective of the actual expenditure incurred by the assessee . In case of a self-occupied property where the annual value is Zero(Nil), the Assessee will not be entitled to the deduction(30%) mentioned in the above point.

Section 24(b) – Interest Deduction

Interest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction can be claimed as deduction under section 24.  Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.

Interest relating to the year of completion of construction can be fully claimed in that year irrespective of the date of completion under section 24 of the Income Tax Act.

Prior Period Interest

Interest payable by the Assessee on borrowed capital for the period prior to the previous year in which the property has been acquired or constructed, can be claimed as deduction over a period of 5 years in equal annual instalments commencing from the year of acquisition or completion of construction.

Annual Value Computation

There are 3 Steps involved in the computation of Annual Value of a House Property, which are explained as follows:

Step 1 Calculate the Gross Annual Value
Step 2 From the gross annual value calculated above, deduct municipal tax paid by the owner during the previous year.
Step 3 The balance will be the Net Annual Value (NAV), which as per the Income-tax Act, 1961 is the annual value

 

Section 24 Illustration

Mr.Girish Agrawal had taken a Home loan of Rs.10,00,000 from HDFC Bank Ltd, for construction of house property on 01.11.2014. Interest was payable @ 10% p.a. The construction was completed on 01.07.2015. No principal repayment has been made up to 31st March 2016. Compute the interest allowable as deduction under section 24 for the A.Y.2016-17.

Solution

Interest for the year (1.4.2015 to 31.3.2016) = 10% of Rs.10,00,000 = Rs.1,00,000

Pre-construction interest = 10% of Rs.10,00,000 for 6 months (from 01.11.2014 to 31.3.2015)= Rs.50,000

Pre-construction interest to be allowed in 5 equal annual installments of Rs.10,000 from the year of completion of construction, that is from PY 2015-16.

Therefore, total interest deduction under section 24 = Rs.1,00,000 + Rs.10,000 = Rs.1,10,000.

Updated: September 23, 2017 — 5:40 pm

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