Section 24 of Indian Income Tax Act – Income tax deductions from house property

The Indian Income-tax Act, 1961 (hereinafter referred to as the "Act") provides for deduction in respect of certain expenses incurred by an individual or a Hindu undivided family. Section 24 deals with income tax deduction from house property. The section specifies that any person who is a resident and owns a residential accommodation shall be entitled to a deduction in respect of the income-tax payable on the total value of such residential accommodation if he satisfies all other conditions mentioned therein. Such deduction shall not exceed 1/3rd of the amount so computed, but no such allowance shall be made where the owner resides outside India at any time during that year or where his ownership in the house property is not for a period of three years or more.

Rent paid by an individual or HUF

For claiming deduction under section 24, rent paid by an individual or HUF is necessary. If the person claims that he is entitled to complete exemption from income tax on his total income, he cannot claim any deduction under section 24 on account of rent paid by him. This is because, if he had been entitled to such exemption and had no taxable total income, there would be no question of any deduction being given under the said section.

Restrictions regarding the time of purchase or construction of house property

The purchase or construction of residential accommodation must meet certain conditions before deductions can be made from it. The most important condition is that the house property has to have been purchased or constructed by 31st March in the relevant assessment year. If all these conditions are met, the person shall be allowed a deduction from his taxable income for three consecutive years beginning with the relevant assessment year. In other words, a person is not entitled to claim deduction under section 24 in respect of any year falling prior to the relevant assessment year.

Conditions for deduction from house property

There are three conditions that have to be satisfied before a person can claim deduction under section 24. These conditions are:- (i) The owner must be an individual or a Hindu undivided family; (ii) He must own residential accommodation. Such accommodation needs not necessarily be situated in India, but it should be 'residential'. Income-tax laws do not specifically define what is meant by 'residential' or 'residential accommodation', but these terms have been judicially interpreted to mean that the place where he resides has to be his home and his main house, even though it may be a rented house. (iii) Such accommodation must have been purchased or constructed by him between 1st April 1981 and the 31st March 1988; those who had not purchased any such accommodation on the later date but had begun to construct it were given an option of choosing any one of the aforesaid dates as that for its purchase or construction.

Who is entitled to claim the deduction?

Only those individuals can claim deduction under section 24 who own residential accommodation which fulfills all the three conditions explained above. For example, if a person has let out his property and has no direct right and title in respect of it he cannot make any claim under this section even though he might be paying rent for residing in that particular house.

Restrictions on the aggregate value of house property

A person is not entitled to claim any deduction under section 24 where the total value of his residential accommodation exceeds Rs. 1,50,000 (i.e., Rs. 8,333 per year for three consecutive years). This restriction does not apply if he resides outside India at any time during that year or if he has purchased or constructed such accommodation after he has attained the age of sixty years; even then the purchase or construction should have been made by 31st March in the relevant assessment year.

Restrictions on owner's income

There are no restrictions on deduction with regard to the total value of the house property if a person owns only one residential house property. The salary received by an individual, HUF or any business income cannot be deducted under section 24. However, there is no objection if such salaries or business income are allowed to be adjusted against the rent paid by the individual; after all, it is still 'house property'. Such adjustment can also be made with regard to any other expenses like remuneration received by self-employed individuals (such as partners in a firm), with letting out furnished accommodation, etc.

House Property - what kind of property will attract this provision?

Depreciation in the value of residential house property must be excluded while determining the aggregate value of such house property, for claiming deduction under section 24. This implies that if a person owns more than one residential house property then he may add the current market value of all his properties at the end of each year and depreciate it by twenty percent per year - to find out the aggregate value at a particular time for a deduction from only one house property owned by him. It is important to note here that depreciation should not be taken into account when computing capital gains. If a person has purchased or constructed residential accommodation after 1st April 1981 and before 31st March 1988 during which period section 24(3) did not exist, he can still claim deduction under section 24(1) to the extent of Rs.15,000 per year even though he might have earned more than that amount by way of income from other sources.

Method for claiming deduction

The amount deducted under section 24 during any particular assessment year is first computed as the aggregate value of house property at the close of each financial year. Then this figure is reduced by twenty percent per annum due to depreciation if there are two or more properties being discussed. The remaining amount after reduction is claimed as a deduction in computing total income according to schedule III (section 80c to 80u). Thus, no claim for deduction under this head can be made until and unless one has computed his total income on the basis of his 'total income' as computed under section 5(1) read with sections 7 and 10 of the Income Tax Act (Rs. 2,40,000 for the assessment year 2018-19).

Deduction allowed to the employer

An employer who claims home loan interest or rental value of accommodation furnished by him to his employee is entitled to claim deduction under section 24. The nature of relief in such a case is not clear from the wording used in section 80GGG. It seems that no relief would be available if the employer pays any amount 'in excess of Rs. 36,000 only on account of home loan interest or rent paid by his employee. If a landlord provides a house property free of charge then also he can claim the deduction.

House Property - how many houses can one claim the deduction from?

Section 24(1) allows a deduction up to Rs. 1,50,000 per year if there are only one house property or two house properties. However, this limit applies only on the total salary plus rent paid; not on rent itself. If a person owns three houses and he pays Rs. 1,00,000 for each house i.e., a total of Rs. 3,00,000 but only Rs.. 50,000 in aggregate for all three houses then his deduction will be limited to Rs. 1,50,000 i.e., his total salary plus rent paid x 3 . If a person owns three houses and he pays Rs. 50,000 only for each house then his deduction will also be limited to Rs. 1,50,000 because this is the maximum limit that can be claimed without any other ceiling on deductions under section 80c to 80u.

Housing Loan Interest - how much interest can one claim?

If an employee takes a loan from the bank or financial institution then he/she may still get deduction under section 24(1) if the following conditions are satisfied: a) The home loan must have been taken either by him/herself or/and spouse; b) The Indian employee pays the interest on this home loan in India, and the Indian employer reimburses the same; c) The Indian employee should not own other residential property. d) Interest paid on Housing Loan - what is eligible? If a person takes a housing loan either to build or purchase his house then any interest paid for such period will be liable to deduction under section 24 (4B). However, if an Indian citizen accepts employment in foreign country and while leaving India he takes a loan from an Indian bank for purchasing his house in India and pays interest thereon, no deduction can be claimed under section 24 for this home loan interest.

Rental Value of Accommodation Furnished by Employer - what is eligible?

If an Indian citizen employed in India takes accommodation provided by his employer then he can claim deduction on the basis that the rent paid is on account of house property. However, if he has taken a housing loan to purchase this house, then section 80C will be activated only on first Rs. 30,000 and not more than that because of total cap on Rs. 1,50,000. Also, the limit of Rs. 1,50,000 cannot be claimed as salary plus rent because it does not include any payment made under section 17 (2) i.e., employers contribution towards NPS.

Investment in Capital Gains on House Property - how much can be claimed?

If a person sells his house property or part thereof after 31st March 2016 then he may claim deduction under section 24 only to the extent of the amount invested i.e. from the sale price of a capital asset. In other words, if a person acquired house property for Rs. 1,00,000 and sold it for Rs. 2,50,000 then he will get a deduction under section 80C up to Rs. 1,50, 000 but not on entire Rs.. 2, 50, 000 i e., total salary plus rent paid x 3. However, note that the entire amount shall qualify as deduction there is no purchase within one year of sale.

Deduction under Sec. 80EE - how much is eligible?

House Property does not qualify for deduction under section 80EE (home loan interest). Instead, it qualifies for deduction under section 24(4B) along with salary.

Business Profit or Not - what decides the eligibility?

If a person derives income from property let out then he can claim deductions u/s.24 but only if his business income exceeds 2 lakhs during the year. This limit is allowed because otherwise total income will exceed taxable income and there should be some limit on exemptions that are allowed based on other conditions mentioned in other sections.

Partnership Firm - owner- partner or employee- partner?

If an Indian citizen is working in India as a partner of a firm, then he/she can claim deductions under section 24. However, if he works abroad and is only a member of the partnership firm through an Indian partner, then he will not be able to avail any deduction for rental paid on account of house property.

Exceptions

There are exceptions under Section 24 of the India income tax act. These exemptions are as follows:

• if the house is not occupied by the owner, in that case, the owner can claim income tax exemptions for the total interest amount that they are paying.
• if the house s not occupied by the owner due to their business or their employment somewhere else and they are living in some different rented property or another property where he is employed then he or she can claim tax rebate on the payment of interest only up to Rs.2 lakhs.
• there is no income tax rebate for brokerage or commission that the individual has to pay to arrange tenant or loan
• the owner of the house should have a certificate of interest in the house of loan that he or she has taken.
• an individual should purchase or finish construction of the time within the time limit of three years of taking home loan to claim a maximum income tax deduction on the interest amount of the loan. But if the purchase or the construction is not completed within three years then the individual can claim the deduction up to Rs.30,000 in place of Rs. 2 lakh.

The amount of deduction under this section cannot exceed the sum of "total rent" received from house property or interest accrued less tax paid for that previous year relevant to an assessment under this act. The said amount cannot also exceed the total income earned from all sources along with any standard deductions claimed if any. In case the individual or HUF has capital gains then these are not counted with respect to the limits mentioned above. In the case where an individual or Hindu undivided family earns both salaries and gain through house property, only one deduction would be allowed i.e either housing loan interest under section 24A or "total rent" received from house property which was actually received as rent under section 24. There is no separate claim as deduction under section 24A as well as section 10(13A) for the assessment year relevant to the previous year in which an individual or Hindu undivided family has claimed deduction u/s 24 from their total income. An amount equivalent to interest paid on a housing loan taken by an individual can be deducted from his/her gross total income if any. The deduction is allowed only when the said house property does not exceed Rs 50 Lakhs and have actual user use for renting purpose to a third party or self-occupied after obtaining due approval from IRDAI (Insurance Regulatory and Development Authority of India). If such benefits are considered u/s 24A then the benefit is not allowed under section 24. The deduction towards own residence can also be claimed by an individual (including HUF) whose employment status has changed within the year and he has received a salary from another employer or is getting house rent plus business income. The deduction for such year shall be restricted to the actual receipt of salary, not exceeding Rs 15, 000 and house rent paid (if relevant) whichever is less. If deduction u/s 24A has been claimed towards expenditure incurred on account of the own residence of an individual then he cannot claim any further benefit under section 80GGG in respect of the same property. Moreover, if HUF claims deduction u/s 24A and thereafter some member dies before exhausting 5 years period specified in Section 24A but still the same house property remains let out etc., then no separate deductions can be claimed by other members either in respect of their own residence or investment made outside the said limit. Even if deduction u/s 24 is not claimed then too property tax paid on self-occupied house property can be claimed as a standard deduction of Rs 5, 000 per month. Moreover, payment made towards maintenance and repairs of occupied house property cannot be allowed as a claim under section 80C since such expenses do not form part of either interest or service charges deductible under section 24.

CONCLUSION

The Income Tax Act, 1961 (Act) provides for deduction of expenditure incurred in respect of the property held by an individual and used exclusively for residential purposes. As per section 24(1)(i), if a person satisfies all conditions specified therein; he shall be allowed to deduct from his total income such proportion as is reasonably attributable to house property. The amount so deducted cannot exceed 1/3rd of the gross total income computed with reference to "total income" under Chapter XVIII-A or any other chapter which may have been added thereto after making necessary adjustments consequentially arising out of addition thereof. This article has provided you with information on Section 24(1)(i) & how it can help you reduce your taxes thanks to this tax deduction! The term 'House Property' is defined under section 2(14) of the Act. It includes any house, building, whether used as a residence or for business or commercial purposes, agricultural land situated with such building, and any land appurtenant to such building. The said property should be held by an individual or HUF for a period equivalent to one year before the beginning of the previous year relevant to income earned in that particular year. Further, there are certain conditions that must be fulfilled so as to claim deduction under section 24 of the Act. If all these conditions are satisfied then only you can opt for claiming house property deductions against your taxable income during the financial year under consideration. Out of many benefits given by Income Tax Department via this tax deduction, most of the property owners prefer it as a beneficial tax planning tool.

Also Read, Section 54 – Capital Gain Exemption | Section 54 vs Section 54F Consequences of Failing to File an Income Tax Return