Deductions Available in House Property Income, Set off ,Carry Forward Losses..

Amount left after deduction of municipal taxes is net annual value. Following permissible deductions are allowed from Annual Value in cases of let out properties (Income Tax Section 24).

Deduction equal to 30% of the annual value, irrespective of any expenditure incurred by the taxpayer (s.24(a)). No other allowance for depreciation, repairs, maintenance etc. would be allowable.

   

Interest on borrowed capital (s.24(b)). Interest on borrowed capital is allowable as deduction on accrual basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or / reconstruction of the house property.

 Some critical issues on deduction of interest..

    The interest is deductible on ‘payable’ basis that is - on accrual basis. Hence it should be claimed on yearly basis even if no payment has been made during the year.

    For claiming interest, it is not necessary that the lender should have a charge on the property for the principal amount or the interest amount.

    Interest payable for outstanding interest is not deductible.

Taxpayer can not claim deduction for any brokerage or / commission paid for arranging loan either as a onetime arrangement or / on periodical basis till the loan continues.

   

In terms of circular No. 28 dated 20th August 1969, if an assessee takes a fresh loan to pay back the earlier loan, the interest on the fresh loan would be deductible.

    Interest on borrowing can be claimed as deduction only by the person who has acquired or /  constructed the property with borrowed fund. It is not available to the successor to the property (if the successor has not utilized borrowed funds for acquisition, etc).

    In case of Central Government employees, interest on house building advance taken under the House Building Advance Rules (Ministry of Works and Housing) would be deductible on the basis of accrual of interest which would start running from the date of drawl of advance. The interest that accrues in terms of rule 6 of the House Building Advance Rules is on the balances outstanding on the last day of each month (Circular No. 363, dated June 24, 1983).

   

Interest for pre-construction period: In such a case, interest paid / or  payable before the final completion of construction or acquisition of the property will be aggregated and allowed for five (5) successive financial years starting with the year in which the acquisition or / construction is completed.

Please note that this deduction is not allowable if the loan is utilized for repairs, renewal or /  reconstruction.

    Interest payable to Non resident...

: As per section 25, interest chargeable under the Income tax Act, which is payable outside India on which tax has not been paid or / deducted (and in respect of which there is no person in India, who may be treated as an agent under section 163) shall not be deducted in computing the income chargeable under the head “Income from house property”.

    Interest on House loan for self occupied house can be deduction maximum up to Rs. 1.5 lakh however if loan is taken for repair ,alteration, renovation, modification then limit is  Rs. 30,000

    Interest on House loan can be deducted if the house is not completed before the end of Financial year,

    Interest on house loan can be claimed for more than one house also, however self occupied house benefit is available maximum on one house only ,and other house will be deemed to be let out.

Set off & carry forward of loss in cases of house property..

(1) Where the property has been let out, loss from one house property can be set off against the income from another house property. The remaining loss, if any, will be set off against incomes under any other heads such as salary, business etc.

In case the loss does not get wiped out completely, the balance will be carried forward. (Sections 70 and 71)

(2) In regard to carried forward losses, Section 71B will apply. Carried forward loss under the head “Income from house property” shall be allowed to be carried forward and set off in subsequent years (subject to a limit of 8 assessment years) against income from house property.

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