The following deals with the Deductions Under House property. The article clearly explains the allowable Deductions under the House property. The article clearly explains the Standard Deduction under the House Property, Interest on borrowed capital, Deduction under the House Property in respect of interest on housing loan under section 80EE. Deductions under House Property comes under the Section 24 of income Tax. In our previous article we clearly explained the Computation of Annual value. The article also explains the Amounts not deductible from income from house property (Section 25).
Deductions Under House Property Section 24
W.e.f. Assessment Year 2002-03, income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely: The following are Deductions under House Property.
(a) Deductions Under House Property -Standard deduction
A base amount of income that is not subject to tax and that can be used to reduce a taxpayer’s adjusted gross income (AGI). A standard deduction can only be used if the taxpayer does not choose the itemized deduction method of calculating taxable income. The amount of the standard deduction is based on a taxpayer’s filing status, age and whether he or she is disabled or claimed as a dependent on someone else’s tax return. A sum equal to 30% of the annual value is the Standared Deduction.
(b) Deductions under House Property -Interest on borrowed capital
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 where the property 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 ` 2,00,000.
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 installments for the said previous year and for each of the four immediately succeeding previous years (means in 5 equal installments):
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 the capital borrowed, for the purpose of repayment of such capital.
Deductions under House Property – Deduction in respect of interest on housing loan under section 80EE
Keeping in view the need for affordable housing, an additional benefit for first-home buyers is provided by inserting a new section 80EE in the Income-tax Act relating to deduction in respect of interest on loan taken for residential house property.
The new section 80EE seeks to provide that in computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.
The amount of deduction shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on 1st April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on 1st April, 2015.
Amounts not deductible from income from house property (Section 25)
Where the amount of interest on money borrowed for the purpose of house property is payable outside India and it is chargeable under the Act, it shall not be allowed as a deduction unless:
- tax has been paid or deducted at source in respect of such payment, or
- there is a person in India who may be treated as an agent or representative of the non-resident to whom such payments have been made.
NEW SECTION 25A INSERTED VIDE FINANCE ACT, 2016
As per new section 25A applicable from Assessment Year 2017-18, the amount of rent received in arrears or the amount of unrealised rent realised subsequently by an assessee shall be charged to tax in the previous year in which such rent is received or realised under the head Income From House Property, whether the assessee is the owner of property or not in that previous year. Further, assessee is allowed deduction of 30% of such amount received/realised.