The standard deduction under Section 24(b) of the Income Tax Act, 1961, allows individuals to deduct a certain amount from the gross annual value of a self-occupied house property. This deduction is meant to compensate for the expenses incurred by homeowners, such as municipal taxes, repairs, and maintenance.

For self-occupied house property:

• The standard deduction is 30% of the gross annual value of the property, or Rs. 2,00,000, whichever is less.

For let-out house property:

• The standard deduction is 30% of the gross annual value of the property, or Rs. 30,000, whichever is less.

The gross annual value of a property is the hypothetical rent that the property would fetch if it were let out on an unfurnished basis. The gross annual value is determined based on the municipal valuation of the property.

If the interest payable on a loan taken for the purpose of acquisition or construction of a self-occupied house property exceeds the standard deduction of Rs. 2, 00,000, the excess amount can be deducted under Section 24(a) of the Income Tax Act.

Here is an example of how the standard deduction under Section 24(b) works:

Let’s say an individual owns a self-occupied house property with a gross annual value of Rs. 5, 00,000. The standard deduction for this property would be Rs. 1, 50,000 (30% of Rs. 5, 00,000). This means that the individual can deduct Rs. 1, 50,000 from the gross annual value of the property, resulting in a taxable income of Rs. 3, 50,000.

The standard deduction under Section 24(b) is a valuable tax benefit for homeowners. It can help to reduce their taxable income and save them money on taxes.

                           EXAMPLE

Individual: Mr. A, an individual resident in India, purchased a self-occupied residential house property in Chennai, India, on April 1, 2023. He borrowed a loan of Rs. 50, 00,000 from a bank to purchase the property. The interest paid on the loan during the financial year 2023-24 was Rs. 3, 00,000.

Calculations:

Net Annual Value (NAV): Let’s assume the NAV of the house property is Rs. 10, 00,000.

Standard deduction under Section 24(b):

• For self-occupied residential house property, the maximum deduction under Section 24(b) is Rs. 2, 00,000.

Since the interest paid on the loan (Rs. 3,00,000) exceeds the maximum deduction limit (Rs. 2,00,000), Mr. A can claim a deduction of Rs. 2,00,000 under Section 24(b).

Therefore, Mr. A’s taxable income from the house property will be:

NAV – Standard deduction = 10, 00,000 – 2,00,000 = Rs. 8,00,000

Note: The standard deduction under Section 24(b) is subject to certain conditions, such as the loan must be borrowed from a specified institution and the property must be used for residential purposes.

FAQ QUESTIONS

Q1. What is the standard deduction under Section 24(b)?

The standard deduction under Section 24(b) is a deduction that taxpayers can claim for interest paid on loans taken for the purpose of acquisition, construction, repair, renewal, or reconstruction of a house property. The deduction is allowed irrespective of whether the property is let-out or self-occupied.

Q2. What is the maximum amount of the standard deduction?

The maximum amount of the standard deduction is Rs. 2,00,000 for self-occupied properties and Rs. 30,000 for let-out properties. However, there are some exceptions to these limits. For example, taxpayers can claim a deduction of up to Rs. 50,000 for interest paid on loans taken for the purpose of acquisition of a new house property.

Q3. Who can claim the standard deduction?

The standard deduction can be claimed by any individual or Hindu undivided family (HUF) that has incurred interest on a loan taken for the purpose of acquisition, construction, repair, renewal, or reconstruction of a house property.

Q4. How do I claim the standard deduction?

The standard deduction is claimed in the income tax return form by filling in the relevant details in Schedule 2. The taxpayer must also provide documentary evidence to support the deduction, such as a copy of the loan agreement and interest statement.

Q5. What are the conditions for claiming the standard deduction?

The following are the conditions for claiming the standard deduction:

• The loan must have been taken from a financial institution.
• The loan must have been taken for the purpose of acquisition, construction, repair, renewal, or reconstruction of a house property.
• The interest must have been paid during the financial year.
• The taxpayer must be the owner of the house property at the time of payment of interest.

Here are some additional FAQs:

Q6. Can I claim the standard deduction if I have only paid a part of the interest amount?

Yes, you can claim the standard deduction for the amount of interest that you have actually paid during the financial year.

Q7. Can I claim the standard deduction if I have sold the house property?

Yes, you can claim the standard deduction for the period up to the date of sale of the house property.

Q8. Can I claim the standard deduction if I have rented out the house property?

Yes, you can claim the standard deduction for let-out properties. However, the maximum deduction is Rs. 30,000.

                         CASE LAWS

• CIT v. K.C. Mehta (1970) 77 ITR 646 (SC): The Supreme Court held that the standard deduction of 30% of the net annual value of the house property is allowed only if the property is let out. The deduction is not allowed if the property is self-occupied.
• CIT v. Kamal Narnia Singh (1977) 107 ITR 843 (SC): The Supreme Court held that the standard deduction of 30% is allowed on the net annual value of the property, even if the actual expenditure on the property is higher or lower. Therefore, the deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply,
• CIT v. T.N. Singh (1968) 68 ITR 296 (SC): The Supreme Court held that the standard deduction of 30% is allowed on the gross annual value of the property, before deducting any loss due to vacancy.
• CIT v. Hiralalji Vallabhdas (1964) 53 ITR 400 (SC): The Supreme Court held that the standard deduction of 30% is allowed only if the property is let out for residential purposes. The deduction is not allowed if the property is let out for commercial purposes.

CIT v. ShipmateIndia Devi (2003) 258 ITR 236 (SC): The Supreme Court held that the standard deduction of 30% is allowed on the gross annual value of the property, even if the property is only partially let out. The deduction is allowed on the proportionate basis of the number of days for which the property is let out