Deductions From House
Property Income – Section 24
Updated on : Jul 23, 2022 - 08:27:50 PM
16 min read.
Buying a home is one of the most common long-term investment goals for most
Indians. A great chunk of one’s income goes towards home loan EMI. So, the
government has given plenty of tax benefits for house property under Section 24 of
the Income Tax Act.
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Income from House Property
The following income will be taxable under the head ‘Income from house
property’ of the Income tax act, 1961.
Rental Income on a let out property
Annual Value of a property which is ‘deemed’ to be let out for income tax
purposes ( when you own more than two house property)
The annual Value of a self-occupied property is Nil.
The annual Value of a self-occupied property is zero or can even be negative if
home loan interest is paid. If the property is let out, its rent received is your Gross
Annual Value. For a deemed to be let out property, a reasonable rent of a similar
place is your Gross Annual Value.
Deductions Under House Property
Municipal tax – Municipal taxes is the annual amount paid to the municipal
corporation of that area. Municipal taxes are to be deducted from the Gross
Annual value to derive the Net annual value of the house property. Deduction
of municipal tax is allowed only if it has been borne by the owner and paid
during that financial year.
Standard Deduction – Standard Deduction is 30% of the Net Annual Value
calculated above. This 30% deduction is allowed even when your actual
expenditure on the property is higher or lower. Therefore, this deduction is
irrespective of the actual expenditure you may have incurred on insurance,
repairs, electricity, water supply etc. For a self-occupied house property,
since the Annual Value is Nil, the standard deduction is also zero on such a
property.
Deduction of Interest on Home Loan for the property –Homeowners can
claim a deduction of up to Rs.2 lakh on their home loan interest if the owner
or his family reside in the house property. The same treatment applies when
the house is vacant. If you have rented out the property, the entire interest on
the home loan is allowed as a deduction. Your deduction on interest is
limited to Rs.30,000 if you fail to meet any of the conditions given below for
the Rs.2 lakh rebate.-
The home loan must be for the purchase and construction of a property;
The loan must be taken on or after 1 April 1999;
The purchase or construction must be completed within 5 years from
the end of the financial year in which the loan was taken
Pre Construction Interest
When you have taken a loan for the purchase or construction of a house property,
you can claim a deduction on pre-construction interest. However, this is not
allowed in the case of the loan for repairs or reconstruction.
The total amount of pre-construction interest and interest on a housing loan that
can be claimed in a year should not exceed Rs 2 lakh in any case. The deduction
for this interest is allowed in 5 equal instalments starting from the year in which
the house is purchased or the construction is completed.
For example, if the construction of your property completed in FY 2018-19, on 25
June 2018, you can claim 1/5th of interest paid up till 31 March 2018 when
you file your return for FY 2018-19.
Conditions for Claiming Interest on
Home Loan
You need to meet all the below 3 conditions to claim this deduction
The loan has been taken after 1st April 1999 for purchase or construction
The acquisition or construction is completed within 5 years (3 Years till FY
2015-16) from the end of the financial year in which the loan was taken
There is an interest certificate available for the interest payable on the loan.
Note that your interest deduction may be limited to Rs 30,000 if any one of
these conditions is met –
The loan is borrowed before 1st April 1999 for purchase, construction,
repairs or reconstruction of house property
The loan is borrowed on or after 1st April 1999 for purchase,
construction, repairs or reconstruction of house property.
Computation of Income Under House
Property
Say, a person repays a housing loan of Rs 4 lakh annually out of which Rs 2 lakh is
the interest component. He has also incurred a pre-construction interest of Rs 3
lakh. He is earning Rs 7000 monthly from a let-out property and also pays
municipal taxes of Rs 3000 for the house. Let’s calculate his Income from house
property in both the scenarios: 1. He has a self-occupied property, or 2. The
property is rented out
Type of House Property
Gross annual Value (Rent paid- 7000*12)
Less: Municipal Taxes or Taxes paid to local authorities
Net Annual Value(NAV)
Less: Standard Deduction(30% of NAV)
Less: Interest on Housing Loan
Less: Pre-construction interest (1/5th of 3 Lakhs)
Income from House Property
Overall loss restricted to
Remember, the maximum loss set-off allowed in a financial year is limited to Rs 2
lakh. The remaining loss can be carried forward to future years – 8 years in total.
However, in these 8 years, it can only be set off from income from house property.
Example of claiming deductions under the following scenario:
1. Mr X has 3 house property, 2 are self-occupied, 1 of them is offered for rent.
Interest paid on a home loan of both the self-occupied properties is Rs 3.00
lakhs and interest paid on rent out a property is Rs. 2.5 lakhs. What all
deductions can be claimed by him under house property income?
Self-occupied properties:
After the amendment in Budget 2019, Mr X can claim two
property as self-occupied properties with annual as Nil. Previous
to 2019, only one property was claimed as self-occupied, the
notional rent of the 2nd property was taxable.
Mr X can claim a maximum of Rs. 2.00 lakh of the aggregate
deduction (for both the self-occupied properties) against actual
home loan interest paid of Rs 3 lakhs.
As the annual value of self-occupied properties is considered nil,
house property income will become negative after claiming home
loan interest. This negative amount can be set off against other
income of the current year. Also, the loss amount can be carried
forward for the next 8 AYs which can be set off against future
house property income only.
Rented property:
In the case of rented property, actual rent received or receivable
will be considered as a ‘ Gross annual value’
Deductions like municipal taxes paid, actual interest on housing
loan (no ceiling limit for claiming interest on let out property) will
be allowed as deduction. Here, Mr X can claim actual home loan
interest paid of Rs. 2.5 lakhs as a deduction for the let out
property.
Mr X can also claim a deduction of up to Rs. 1.5 lakh for principal
repayment under section 80C which will be the aggregate of all home
loan repayments.
Further, it should be noted that in case Mr X opts for a ‘New tax
regime’ for FY 2020-21, the deduction for interest on home loan as well
as 80C deduction for repayment of the principal amount of loan will not
be eligible. Also, one cannot set off the house property loss against any
other head of income.
