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After a few years of working, it is common to want to purchase a home to live in. House prices have indeed shot through the roof! Many have to rely on home loans. However, the government has also given plenty of benefits for property. One of this is tax deductions from house property income. In this article, we will discuss Section 24 of the Income Tax Act that allows such deductions.
Income from House Property is possible in these cases –
Under section 24 of the Income Tax Act you are allowed to make certain deduction from the Net Annual Value of your House Property. Net Annual Value is Gross Annual Value less Municipal Taxes Paid. In case the property is let out, its rent received is your Gross Annual Value, whereas in case of a deemed to be let out property, a reasonable rent of a similar place is your Gross Annual Value. For a self occupied house property the Gross Annual Value is Nil.
a. 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.
b.Deduction of Interest on Home Loan for the property –Homeowners can claim a deduction of up to Rs.2 lakhs (Rs. 1,50,000 if you are filing returns for FY 2013-14) 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. See all the conditions to claim the Rs.2 lakhs rebate-
i. The home loan must be for purchase and construction of a property;
ii. The loan must be taken on or after 1 April 1999;
iii. The purchase or construction must be completed within 5 years from the end of the financial year in which the loan was taken
Is allowed when you have taken a loan for purchase or construction of a house property (not allowed in case of the loan for repairs or reconstruction). The deduction for this interest is allowed in 5 equal installments starting from the year in which the house is purchased or the construction is completed. For example, if construction of your property completed in FY 2016-17, on 25th June 2016, you can claim 1/5th of interest paid up till 31st March 2016 when you file your return for FY 2016-17.
Though pre construction interest is allowed to be deducted on the basis of 1/5th each year beginning the year in which the construction is completed – the total amount of pre construction interest and interest on housing loan that can be claimed in a year should not exceed Rs 2 lakhs in any case.
You need to meet all the below 3 conditions to claim this deduction
a. Loan has been taken after 1st April 1999 for purchase or construction
b. The acquisition or construction is completed within 5 years(3 Years till Financial Year 2015-16) from the end of the financial year in which the loan was taken
c. There is 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 –
a. Loan is borrowed before 1st April 1999 for purchase, construction, repairs or reconstruction of house property
b. Loan is borrowed on or after 1st April 1999 for repairs, renovation or reconstruction of house property.
Suppose, a person repays housing loan of Rs. 4 lakhs annually out of which Rs. 2 lakhs is the interest component. He has also incurred a pre-construction interest of Rs. 3 lakhs. He is earning Rs. 7000 per month from a let out property and also paying 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||Self Occupied||Let Out|
|Gross annual Value (Rent paid- 7000*12)||NIL||84,000|
|Less: Municipal Taxes or Taxes paid to local authorities||NA||3,000|
|Net Annual Value(NAV)||Nil||81,000|
|Less: Standard Deduction(30% of NAV)||NA||24,300|
|Less: Interest on Housing Loan||200,000||200,000|
|Less: Pre-construction interest (1/5th of 3 Lakhs)||60,000||60,000|
|Income from House Property||(260,000)||(203,300)|
|Overall loss restricted to||(200,000)||(200,000)|
Remember, maximum loss set off allowed in a financial year is limited up to Rs 2 lakhs, 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 Incoem from house property.