Income Tax News: In the vast landscape of Indian financial planning, the dream of owning a home holds a special place for many. It’s not just about having a roof over one’s head but also about securing a future through long-term investments. However, with the significant portion of income directed towards home loan EMIs, the Indian government has extended a helping hand through various tax benefits, particularly under Section 24 of the Income Tax Act.
Decoding Income from House Property
Under the Income Tax Act of 1961, income from house property encompasses various streams:
- Rental Income on Let-Out Property: Any income generated from renting out a property is taxable under this category.
- Deemed Let-Out Property: Properties that are not rented out but are deemed to be let out for income tax purposes, especially if one owns more than two house properties.
- Self-Occupied Property: The annual value of a self-occupied property is considered nil, and in some cases, it can even be negative if home loan interest is paid.
Unveiling Deductions Under House Property
When it comes to deductions, understanding the nuances is crucial:
- Municipal Tax Deduction: Municipal taxes paid annually are deductible from the Gross Annual Value, provided they are borne by the owner and paid during the financial year.
- Standard Deduction: A flat 30% deduction of the Net Annual Value is allowed, irrespective of actual expenditure on the property.
- Interest on Home Loan Deduction: Homeowners can claim up to Rs. 2 lakh deduction on the interest paid towards their home loan, provided certain conditions are met.
Who Can Claim Deductions Under Section 24?
Individuals owning residential properties that generate rental income or are self-occupied are eligible for deductions under Section 24. Two types of deductions are prevalent:
- Standard Deduction: A straightforward 30% deduction on the gross annual value.
- Interest on Home Loan: Deduction on interest paid on loans for property acquisition, construction, or repair, capped at Rs. 2 lakhs per annum.
Crunching Numbers: Calculating Gross Annual Value
The Gross Annual Value, crucial for tax calculations, can be determined based on:
- Actual Rent Received: For rented properties, the actual rent received is considered.
- Municipal Valuation: For self-occupied properties, municipal valuation serves as a proxy for the gross annual value.
Pre-Construction Interest: A Vital Consideration
Pre-construction interest can be claimed on loans for property purchase or construction, subject to certain limitations.
Conditions for Claiming Interest on Home Loan
To avail of the interest deduction on home loans, specific conditions must be met:
- The loan must be taken after April 1, 1999, for property purchase or construction.
- Acquisition or construction must be completed within five years from the end of the financial year in which the loan was taken.
- An interest certificate must be available for the interest payable on the loan.
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