[24. Deductions from income from House Property.
Income chargeable under the head "Income from house property" shall be computed after making the following deductions, namely :
(a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed, repaired,
renewed or reconstructed with borrowed capital, the amount of any
interest payable on such capital :
Provided that in respect of property referred to in sub-section (2) of
section 23; the amount of deduction shall not exceed thirty thousand
rupees :
Provided further that where the property referred to in the first
proviso is acquired or constructed with capital borrowed on or after
the 1st day of April, 1999 and such acquisition or construction is
completed [within three years from the end of the financial year in
which capital was borrowed] the amount of deduction under this clause
shall not exceed one lakh fifty thousand rupees.
Explanation.:Where the property has been acquired or constructed with
borrowed capital, the interest, if any, payable on such capital
borrowed for the period prior to the previous year in which the
property has been acquired or constructed, as reduced by any part
thereof allowed as deduction under any other provision of this Act,
shall be deducted under this clause in equal instalments for the said
previous year and for each of the four immediately succeeding previous
years.]
[Provided also that no deduction shall be made under the second proviso
unless the assessee furnishes a certificate, from the person to whom
any interest is payable on the capital borrowed, specifying the amount
of interest payable by the assessee for the purpose of such acquisition
or construction of the property, or, conversion of the whole or any
part of the capital borrowed which remains to be repaid as a new loan.
Explanation.:For the purposes of this proviso, the expression "new
loan" means the whole or any part of a loan taken by the assessee
subsequent to capital borrowed, for the purpose of repayment of such
capital.]
Discussion:
1. A sum equal to 30% of the annual value is deducted from the annual value computed.
2. If the assessee has taken any loan for
construction, repair, renovation or acquisition of the house property,
then, the interest on such loan is also eligible for deduction from the
annual value.
3. For self occupied properties, since the annual
value is nil, the deduction for interest on borrowed funds is limited
to Rs.150000, if the house is acquired or constructed after 1.4.1999.
But, the construction of the house shall be completed within 3 years of
borrowing the funds.
4. For houses constructed with borrowed funds before
31.3.1999, the deduction for interest is limited to Rs.30000 in case of
self occupied properties.
5. In case of let out properties, there is no
monetary restriction for deduction of interest on borrowed capital.
Hence, any amount of interest can be deducted thereby bringing the
income from house property into negative.
6. Interest is allowed as a deduction only when the
construction of property is completed. For the interest that is
incurred prior to the completion of construction of the property, that
interest is to be accumulated till the completion of construction and
is allowable in four equal instalments after completion of construction.
7. Hence, the interest allowable in the first four
years after completion of construction is: interest incurred during
that previous year plus ¼ of interest relating to preconstruction
period.
8. Interest on capital borrowed to repay the previous
loan taken for construction, acquisition, repair or renovation of house
property is also eligible for deduction.
9. For the purpose of deduction of interest on
borrowed capital, the assessee shall produce a certificate from the
lender specifying the amount of interest that is incurred on the
borrowing.
10. It is not necessary that the interest shall be
actually paid by the assessee. If the interest is incurred, i.e.,
payable by the assessee, that is enough for the assessee to claim the
deduction.
Circulars:
1. Fresh loan raised to repay original loan--Interest on the second loan would also be allowable under section 24(1)(vi)
If the second borrowing has really been used merely to repay the
original loan and this fact is proved to the satisfaction of the ITO,
the interest paid on the second loan would also be allowed as a
deduction under section 24(1)(vi).--Vide Circular No. 28, dt. 20-8-1969.
2. House building loan taken by Central Government employees--Interest
to be allowed on accrual basis as deduction under section 24(1)(vi)
Under section 24(1)(vi) of the Act, where property has been acquired or
constructed with borrowed capital, a deduction in respect of amount of
interest payable on such capital is allowed in computing the income
from house property. Since the word used is "payable" deduction under
section 24(1)(vi) would be on the basis of accrual of interest which
would start running from the date of the drawal of the advance. The
interest that accrues is to be calculated annually in terms of rule 6
of the House Building Advance Rules on the balances outstanding on the
last day of each month.--Vide Circular No. 363, dt. 24-6-1983.
Other Pages on Income From House Property: Annual Value Deductions Definitions General Information Other Provisions
Disclaimer:
All the information provided above is for informative purposes only.
You are advised to consult your tax consultant before you act upon any
of the above information. In spite of this, if any person acts upon
this information and suffers any loss, we are not to be held liable.
Though all efforts have been made
to provide latest information, you are advised to check latest
circulars, latest changes in law etc from the Indian Income Tax
Department.
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