Tax Basics: Section 24 Of The Income Tax Act

The Fundamentals of House Property Tax

It may be your house or an office or a store or even some land adjacent to a structure like a parking lot that is classified as real estate. According to the Income Tax Department, there is no distinction between a business and a residential property under the Internal Revenue Code.

The income tax return treats all kinds of property as 'home property' and taxes them accordingly. An owner for tax purposes is the person who has legal ownership of the property and may exercise ownership rights on his or her own behalf, not on behalf of another person.

It is taxed as 'income from business and profession' when a property is utilized for business or profession or to carry out the freelance activity. Repair and maintenance costs are deductible as a business expense.

1. Self-occupied Housing Property

A self-occupied home property is one that's inhabited only by the owner's family. This might be the home of the taxpayer's parents, or it could be the home of the taxpayer's spouse and kids. For income tax purposes, an empty home is treated as though it were inhabited by the owner.

If a taxpayer owns more than one self-occupied home property, only the first is regarded as a self-occupied property, and the others are presumed to be rented out. This will change in FY 2019-20. The taxpayer gets to decide whether property qualifies as a self-occupied deduction.

The advantage of treating two homes as self-occupied has been extended to FY 2019-20 and beyond. Currently, a homeowner may deduct the cost of owning and occupying two homes as self-employment income while deducting the rental income from the third property.

2. Rented Out Housing Property

In terms of income tax, a home that is leased out for part or all of the year is a let-out house property.

3. Property Passed Down Through the Generations (Inherited property)

An inherited property, such as one left to you by your parents, grandparents, or other family members, may either be used as your primary residence or rented out, depending on how you want to use it.

Deductions Under Section 24

There are many tax deductions available under the Indian Income Tax Act of 1961, Section 24.

1. Municipal Tax Deductions

The municipal tax is a one-time payment made to the local government on a yearly basis. To calculate the net worth of a home, subtract the yearly gross value from the total amount of taxes owed. If the homeowner pays and bears the municipal tax throughout the financial year, the deduction is given.

2. Standard Deductions

The standard deduction for income tax purposes is set at 30% of Net Annual Value under this clause. However, the self-occupied home is exempt from this deduction.

3. Loan Interest Deductions

Interest on property purchased, repaired, built, rebuilt, or renewed is free from paying taxes. To put it another way, if a loan is taken out to carry out any of these listed activities, the interest on that loan is tax-deductible under Section 24.

Exemptions Under Section 24

• If you don't live in the home, you may get a tax break for the whole amount of interest you're paying, up to the maximum allowed.
• In this case, you may only claim a tax exemption on interest payments up to Rs. 2 lakhs if you do not reside in the home because you work or have a company in another town and you live in another property or leased property in the city where you work.
• There isn't a penny deducted since the broker or tenant arranger got a commission.
• To deduct the full amount of your loan interest, you must either purchase or finish building your home within three years of taking out the loan. If the building or acquisition is not completed within three years, you may only claim Rs 30,000 instead of Rs 2 lakh.
• If you take out a loan, you'll need an interest certificate.

Wrapping Up

First-time homebuyers will appreciate the tax break provided by Section 24 of the Income Tax Act. It's not simple to buy a home, and it's much more difficult to pay off the mortgage in instalments. However, using Section 24 deductions makes it simpler to buy the home of your dreams.