Section 24 of ITA, 1961 : Section 24: Deductions From Income From House Property

Explanation using Example

Let's say Mr. Sharma owns a rental property that has an annual value (rental income) of Rs. 3,00,000. According to Section 24 of the Income-tax Act, 1961, he can claim deductions from this income before calculating the tax.

• Firstly, he can claim a standard deduction of 30% on the annual value. So, 30% of Rs. 3,00,000 is Rs. 90,000.
• Secondly, if Mr. Sharma took a loan to buy or construct this property and is paying interest on the borrowed capital, he can claim this interest as a deduction. Assuming he pays Rs. 1,50,000 as interest annually, he can deduct this amount in full since it is below the Rs. 2 lakh limit for properties acquired or constructed with capital borrowed after April 1, 1999, and completed within five years.
• If Mr. Sharma's property is older and he borrowed the capital before April 1, 1999, or the construction was not completed within five years, his interest deduction would be capped at Rs. 30,000.
• To claim the interest deduction, Mr. Sharma must provide a certificate from his lender stating the interest amount he is liable to pay for that year.

In this scenario, Mr. Sharma's deductions under Section 24 would be Rs. 90,000 (standard deduction) + Rs. 1,50,000 (interest deduction), totaling Rs. 2,40,000. This would reduce his taxable income from house property to Rs. 60,000 (Rs. 3,00,000 - Rs. 2,40,000).