Section 24 (B): All About Deductions from House Property Income

Owning a house is a distant dream for many; if you have more than one, consider yourself lucky. Having more than one house provides you with ample opportunity to earn more through rent and leading a prosperous life. Indeed, investments in the real-estate sector have become popular because it seldom fails to deliver. However, you should not forget to pay your house property taxes that are codified under section 24 (b) of the Income Tax Act (1961) on time. In the following section, let us learn more about your income from house property.

• The value of self-occupied properties is always nil. However, the values of rented and deemed to be rented-out properties are calculated for taxation purposes.
• A standard deduction of 30% is made on the gross annual value of your rental property.
• If you have taken a loan for the construction of your rental property, you are eligible for tax deductions.

Before we get on to the concept of house-property taxation, we must first understand the house as a revenue-generating property under section 24 (b) of the Income Tax Act of 1961. Thereafter, we can easily see the rationale behind the taxes imposed on a house property. House-property can be of three types:

1. Self-occupied, i.e., your house that you use for residential purposes and not for renting.
2. House that you own but have not rented out. These properties are called ‘deemed to be let-out’ properties.
3. House or apartment that you have actually rented out.

Now, the valuation of these three categories should not be—and are not—the same. For the first category, the Gross Annual Value (GAV) is considered to be nil. For the second category, the reasonable rent for a property of similar area and situated in a similar area is considered. Lastly, for the third category, the valuation is understood to be the annual value of the property (i.e., the revenue it generates in terms of rent) minus a summation of the taxes you pay to the Municipal Corporation annually.

In this section, let us take a look at your tax liabilities and what are the components of tax deductions on your property.

Standard deduction

A flat deduction rate of 30% is followed in case you have a property on rent. The upside of this taxation principle is that it remains constant, irrespective of your expenditure (maintenance, electricity, repairs) for maintenance of the house property. When you deduct the standard deduction component from the GAV, you get the NAV (net annual value).

Deduction for home loans

If you have bought or constructed the property that you have rented out by applying for a home loan, then the value of your house property dips further. Under section 24 (b), you are eligible for a tax deduction of up to Rs. 2 lakhs on your accrued interest. Please keep in mind that this deduction will not be applicable in case you are reconstructing or repairing the house. The reduction in the value is due to the consideration that you would be burdened with paying off your home loan plus interest.

Furthermore, the deduction amount will be reduced to Rs. 30,000 if:

• You had applied for the loan before 1st April 1999 for any purpose related to house property.
• You applied for the loan after 1st April 1999 for any purpose other than the construction or acquisition of a house property.
• Construction was not completed within five years from the end of the financial year in which you received the funds.

For instance, let us assume you applied for—and received the loan amount in May 2015. The construction wasn’t completed by May 2020. In this scenario, you are eligible to claim deductions of up to Rs. 30,000.

Deductions available under section 24 (b) empower you to save up to Rs. 2 lakhs on the interest accrued on the home loan. However, the reduction is limited to Rs. 30,000 if you applied for the loan before 1st April 1999. You can also make use of the standard deduction on house property to reduce the valuation of the same and thus reduce your tax liability.

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