Deduction under section 24 for house property income

Income under the head house property deduction under section 24: two deductions are available under section 24 --

• Standard deduction section 24(a);

• Interest on borrowed capital section 24(b).

The schedule of allowance of section 24 is exhaustive. In other words, no other deduction can be claimed under section 24. For instance, no deduction will be claimed in respect of expenses on insurance, land revenue, ground rent, repairs, maintenance charges, collection charges, electricity supply, water supply facility, salary of liftman, etc.

DEDUCTION UNDER SECTION 24 FOR HOUSE PROPERTY INCOME | DEDUCTION FROM HOUSE PROPERTY INCOME SECTION 24 | DEDUCTION UNDER SECTION 24 FOR HOME OWNERS | STANDARD DEDUCTION SECTION 24(a) | INTEREST ON BORROWED CAPITAL SECTION 24(b) INCOME TAX ACT

The list of deduction under section 24 is exhaustive i.e., no deduction can be claimed in respect of expenditures which are not specified under this section e.g., no deduction is allowed for repairs, maintenance charges, collection charges, insurance, ground rent, land revenue, etc.

(1) STANDARD DEDUCTION UNDER SECTION 24

30% of the net annual value is allowed as standard deduction in respect of all expenditures (other than interest on borrowed capital) irrespective of the actual expenditure incurred.

Note: Where net annual value (NAV) is negative or zero, standard deduction under section 24(a) is not available.

(2) INTEREST ON LOAN OR BORROWED CAPITAL UNDER SECTION 24(b)

Interest payable on amount borrowed for the purpose of purchase, construction, renovation, repairing, extension, renewal or reconstruction of house property will be claimed as deduction on accrual basis.

For the purpose of calculation, interest on loan is split into two parts:

INTEREST ON LOAN

(i) Interest for pre-construction period,

(ii) Interest for post-construction period.

(i) INTEREST FOR PRE-CONSTRUCTION PERIOD

Pre-construction period means the period starting or begining from the day of commencement of construction or the day of borrowing whichever is later and closing or ending on 31st March immediately prior to the year of completion of construction contract.

Example: X has taken a loan on 01/04/1998 for construction of house property. Construction started on 01/06/2000 and completed on 17/08/2011. In such case, pre construction period will be a period starting from 01/06/2000 and ending on 31/03/2011.

Treatment: Interest for pre-construction period (to the extent it is allowed as deduction under any other provisions of the Act) will be accumulated and claimed as deduction over a period of 5 continuous years in equal installments staring / commencing from the year of completion of construction contract.

(ii) INTEREST FOR POST-CONSTRUCTION PERIOD

Post-construction period means the period starting from the beginning of the year within which constuction is completed and continues until the loan is repaid.

Treatment: It will be fully claimed as deduction within the respective year(s). In the given example, post-construction period will start / begining from 01/04/2011.

In nutshell, tax treatment is as under:

PRE-CONSTRUCTION PERIOD:

• Starts from: The day of commencement of construction or the day of borrowing, whichever is later.

• Ends on: March 31 immediately prior to the year of completion of construction.

• Tax treatment: The interest incurred during aforesaid period shall be accumulated and allowed as deduction in 5 equal installments from the year of completion of construction.

POST-CONSTRUCTION PERIOD

• Starts from: The first day of the previous year in which construction is completed.

• Ends on: When loan is fully paid.

• Tax treatment: The interest expenses for the year (on accrual basis) shall be allowed as deduction in the respective year.

OTHER POINTS

(a) Interest on borrowed capital is allowed on accrual basis although the books of account are kept on cash basis.

(b) Interest paid on fresh loan or new loan which is taken to repay the original loan (being taken for above-mentioned purpose) shall be allowed as deduction.

(c) Interest on new loan, taken for paying outstanding interest on old loan / previous loan, is not deductible.

(d) Amount paid or payment as brokerage charges or commission, for arrangement of the loan, is not deductible.

(e) Interest on loan taken for paid or payment of municipal tax (MT), etc. is not allowed as deduction.

AMOUNT NOT DEDUCTIBLE FROM INCOME FROM HOUSE PROPERTY SECTION 25

Any interest chargeable under this Act or provision which is payable out of India, is not allowed as deduction if:

• on such interest, tax has not been deducted at source (TDS) and paid and payable as per the provision of chapter XVIIB; and

• in respect of such interest there is no person in India who may be treated as an agent under section 163.