Deduction from income of housing property (Section 24)

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 Content:

Introduction

Interest on borrowed capital(section 24b)

Calculation for the interest on loan

Amount of Deduction allowed

Silent feathers that allow the ability of interest under head income from house property head

Deduction from income of housing property (Section 24) 

Deductions

According to section 24 of the Income Tax Act, there are two types of deductions claimed under this section and the deductions are:

  • Standard deduction of 30% of annual value(Section 24A)
  • This is a flat deduction as standard deduction given from income of house property
  • Assessee will not be able to take this 30% standard deduction if Annual value received is nil
  • Interest paid on home loan(Section 24B)
  • Section 24 of the Income Tax Act, 1961 states that the amount of interest on housing loan whether accrued or paid, shall be deductible from the income from house property.
  • Here, the loan must have been taken for the purpose of purchase or construction or repair or renewal or reconstruction of a residential house property.

Interest on borrowed capital (section-24b)

Interest on borrowed fund for the construction of house property is divided in two parts:

  • Interest on pre-acquisitions period

Pre-acquisition interest means interest occurred before the completion of construction or acquisition of house property. Deduction on pre-construction or acquisition is taken in 5 year equal installment from the date of completion of construction or acquisition.

  • Interest on post-acquisitions period

Interest related to post acquisition or construction period can be claim each year as the interest may paid or outstanding

Calculation for the interest on loan

Calculation of pre-acquisition and post-acquisition period:

Pre-construction period Post-acquisition period
Period start From date of borrowing loan From 1st day of Financial Year in which constructions of house is completed.
Period end On 31st March of Financial Year immediately preceding the year of completion of constructions. When loan is repaid or end of financial year (whichever is earlier).
Example If loan is taken on 01-07-05 and house completed 15-09-08. Pre-acquisition period will be: 01-07-05 to 31-03-08. If loan is taken on 01-07-05 and house completed 15-09-08 and loan repaid as 31-12-11. The post-acquisition period will be:

a)      01-04-08 to 31-03-09

b)     01-04-09 to 31-03-10

c)      01-04-10 to31-03-11

d)     01-04-11 to 31-12-11
Treatment 1.      Make a total of interest of pre-acquisition period

2.      Total interest divide into 5 equal parts.

3.      Interest will allow in equal 5 installments.

 Interest for post construction period will be allowed in the respective years.
1st installment will be allowed from the financial year in which house is completed.

Amount of Deduction allowed

For finding the limit of interest allowed we will divide the property in three parts:

S.no Particulars Amount
1. Property let out No restrictions
2. Property deemed to be let out No restrictions
3. Self-occupied property If the 4 condition given below in the note is satisfied then lower of the following will be allowed:

·        Interest calculated

or

·        Rs 200000

 If the 4 condition given below in the note is not satisfied then lower of following will be allowed:

·        Interest calculated

or

·        Rs 30000

NOTE: The four conditions are:

  • Loan must be taken on or after 01-04-99.
  • Loan must be taken for acquisitions or constructions of property.
  • Construction must be completed within 5 years starting from end of year in which loan was taken.

Example: If loan taken on 15-07-02 then house should be constructed up to 31-03-08.

  • Lender certificate must be obtained.

What are the silent feathers that allow the ability of interest under head income from house property head?

  1. Loan must be taken for purchase, construction, repair or renovations of house property.
  2. It is allowed on accrual basis even though not paid during the previous Year.
  3. Interest on interest will not be allowed.
  4. Interest on fresh loan to repay existing loan will be allowed.
  5. Loan may be taken from any one.
  6. Loan taken for payment of municipal tax will not be allowed.
  7. Any brokerage or commission for acquiring the loan will not be allowed.
  8. Interest payable outside (whether to resident or non-resident) India is not allowed as deduction:
  • In on such interest TDS is not deducted and deposited and
  • Payee has no person in India who can treat his agent under section 163.

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