When it comes to tax planning, understanding the provisions related to income from house property can significantly impact your tax liability. Section 24 of the Income Tax Act offers various deductions that can be availed to reduce the taxable income from house property. Let’s delve into the intricacies of Section 24, explaining how to compute income from house property, and highlighting the tax benefits available.
What is Section 24 of the Income Tax Act?
Section 24 of the Income Tax Act deals with the deductions available from the income earned through house property. The two main deductions under this section are:
Standard Deduction: It is a flat 30% deduction on the net annual value of the property, irrespective of the expenses incurred.
Interest on Home Loans: It is a deduction on interest paid on loans taken for the purchase, construction, repair, renewal, or reconstruction of the house property.
Computation of Income from House Property
Calculating income from house property involves several steps:
Determine Gross Annual Value (GAV): The GAV is the highest of the following:
Rent received or receivable.
Municipal value of the property.
Fair rental value of the property.
However, if the property is vacant for a part of the year and the rent received is less than the expected rent, the actual rent received is considered the GAV.
Deduction of Municipal Taxes Paid: Municipal taxes actually paid by the owner during the year are deducted from the GAV to arrive at the Net Annual Value (NAV).
NAV=GAV-Municipal Taxes Paid
Deductions under Section 24:
Income from House Property = NAV-Standard Deduction - Interest on Home Loan
For example, consider a house property with the following details:
Rent received: ₹4,00,000 per annum
Municipal value: ₹3,50,000 per annum
Fair rental value: ₹3,80,000 per annum
Municipal taxes paid: ₹50,000
Interest on home loan: ₹1,50,000
Here is a step-by-step calculation for the above –
GAV: Highest of Rent received, Municipal value, and Fair rental value.
NAV: GAV - Municipal Taxes Paid
NAV = ₹4,00,000 - ₹50,000 = ₹3,50,000
Deductions under Section 24:
Standard Deduction: 30% of NAV 30% of ₹3,50,000=₹1,05,000
Interest on Home Loan: ₹1,50,000
Income from House Property:
₹3,50,000−₹1,05,000−₹1,50,000=₹95,000
Thus, the income from house property is ₹95,000.
Using Tax Calculators
An income tax calculator can be a handy tool to compute your taxable income after considering deductions under Section 24. These calculators are designed to provide a quick and accurate estimate of your tax liability.
A tax calculator helps in determining the tax payable. While it functions similar to an income tax calculator, it takes into account various deductions, including those under Section 24, and provides a clear picture of your tax obligations.
New Tax Regime Calculator
With the introduction of the new tax regime, taxpayers have the option to choose between the old and new tax regimes. A new tax regime calculator helps compare the tax liability under both regimes, allowing taxpayers to make an informed decision.
Claims under Section 24 of the Income Tax Act for deduction on interest on home loan cannot be made if you have opted for the new tax regime. You will be required to adhere to defined tax slab rates without scope for any exemptions.
Tax-Saving Instruments
While Section 24 offers substantial deductions, it's also beneficial to explore other tax-saving investments to further reduce your taxable income. These may include investments in Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Savings Certificate (NSC), and more.
Understanding the provisions of Section 24 of the Income Tax Act can significantly help in reducing your tax liability. By accurately computing income from house property and availing the available deductions, you can optimise your tax planning strategy. Utilising tax calculators can further streamline this process, ensuring that you make the most of the tax benefits available.
Frequently Asked Questions (FAQs)
Can I claim deductions under Section 24 if the property is vacant?
Yes, you can claim deductions under Section 24 even if the property is vacant for a part of the year. The actual rent received, or receivable will be considered while computing the GAV.
Is there a limit on the interest deduction for let-out property?
No, there is no upper limit on the interest deduction for let-out property under Section 24.
Can I claim both the standard deduction and interest on home loan?
Yes, you can claim both the standard deduction (30% of NAV) and the interest on home loan under Section 24.
How does the new tax regime affect deductions under Section 24?
Under the new tax regime, taxpayers are not eligible for most deductions, including interest deduction under Section 24. It's important to compare the tax liability under both regimes using a new tax regime calculator before making a decision.
** Tax exemptions are as per applicable tax laws from time to time.
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