House Property deductions under Section 24B

House Property deductions under Section 24B of the Income Tax Act

What is a House Property?

A house property means a building or buildings with lands connected thereto.  It includes any superstructure that is capable of getting occupied, and the building must be the most prominent part of the said property comprising of land and building.

A house property under the Income Tax Act includes flats, buildings, office spaces, shops, factory sheds, commercial buildings or even agricultural lands.

There are three types of house properties.  They are:

  • A self-occupied property
  • Let out property
  • Deemed let out property

What is Income from House Property?

Income from house property means any income arising out of the house property including rental incomes.

It also includes the income from the transfer of the house property.

Components considered in the computation of House Property Income

When you compute the income from the house property various aspects form part of this computation.

Let’s know in detail about these concepts.

Gross Annual Value

The Gross Annual Value of a house property is the total rental income received during a particular financial year.

It includes the rent received and also the receivable rent.

For a self-occupied property, the gross annual value is Nil.

For a let-out property, the gross annual value is the total rent received during the year.

Municipal taxes

Municipal taxes are the taxes paid to the government by the owner of the house.  It can be claimed as a deduction for the let-out property.  But for a self-occupied property, it cannot be claimed as a deduction.

The total amount paid for municipal taxes can be claimed as a deduction from the gross annual value.

Net Annual Value

Net Annual Value is the value of the income from the house property after deducting the municipal taxes from the gross annual value of the property.

The Net Annual Value for a self-occupied property is Nil.  But, the net annual value of a let-out property is derived after deducting the municipal taxes.

Deductions under section 24

Deductions under section 24 are of two types.  The first is the standard deduction which is valued at 30% of the net annual value of the house property.

The other type of deduction from house property is the interest on the loan amount taken for house property.

Computation of Income from House Property

The statement of computation of Income from House Property is:

Particulars                                                                                                           Rs.

Gross Annual Value                                                                                         xxx

Less: Municipal taxes                                                                                      (xx)

Net Annual Value                                                                                            xxx

Less: deductions under section 24

  • Standard deduction @ 30% on Net Annual Value                             (xx)
  • Interest on housing loan                                                                    (xx)

Income from House Property                                                                        xxx

What are the deductions under House Property?

Deductions from the annual value of a house property are of two types, that are (a) Standard deduction, and (b) Interest from the housing loan amount.

As per section 24(a) of the Income Tax Act, 1961, an individual can claim 30% of the net annual value as a standard deduction.

It is a flat deduction and is allowed irrespective of the actual expenditure incurred.

The assessee will not be entitled to a deduction of 30%, in the following cases as the annual value itself is nil:

  • In the case of a self-occupied property
  • In case of property held as a stock-in-trade and the whole or any part of the property is not let out during the whole or any part of the previous year

As per section 24(b) of the Income Tax Act, 1961, an individual can claim the interest paid on the housing loan for a particular year.

Interest payable on loans borrowed for acquisition, construction, repairs, renewal or reconstruction can be claimed as a deduction.

Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.

It also includes the Interest for the pre-construction period.  The pre-construction period is the period before the previous year in which property is acquired or construction is completed.

Interest payable on borrowed capital for the period before the previous year in which the property has been acquired or constructed as reduced by any part thereof allowed as a deduction under any other provision of the Act can be claimed as deduction over 5 years in equal annual instalments commencing from the year of acquisition or completion of construction.

Interest for the year in which construction is completed / property is acquired:

Interest relating to the year of completion of construction/acquisition of property can be fully claimed in that year irrespective of the date of completion/acquisition.

If the loan is taken before 1.4.1999, where the property has been acquired, constructed, repaired, renewed or reconstructed:

Actual interest payable in aggregate for one or two self-occupied properties, subject to a maximum deduction of Rs. 30,000.

If the loan is borrowed on or after 1.4.1999, there are two cases where you can see the maximum amount of deduction:

  • If the property is acquired or constructed with the capital borrowed, the maximum amount of deduction available is Rs. 2,00,000.
  • If the property is repaired, renewed or reconstructed with capital borrowed on or after 1.4.1999, the maximum deduction allowable is Rs. 30,000.

Conclusion

There are certain important points to be considered in the context of deductions from house property.  They include:

  • The ceiling limit would not apply to let-out / deemed let-out property:

The ceiling prescribed for self-occupied property in respect of the interest on the loan borrowed does not apply to a let-out / deemed let-out property.

  • Interest allowable on an accrual basis:

Deduction under section 24(b) for interest is available on an accrual basis.  Therefore, interest accrued but not paid during the year can also be claimed as a deduction.

  • The unpaid purchase price would be considered as a capital borrowed:

Where a buyer agrees with a seller to pay the sale price in instalments along with the interest due thereon, the seller becomes the lender about the unpaid purchase price and the buyer becomes the borrower.