Under section 24, tax deduction from annual value of house property is available while calculating income from house property. Only two types of tax deductions are allowed under section 24 of income tax act;
- Standard Deduction
- Interest on borrowed capital
The list presented in section 24 is an exhaustive list and no other deductions are allowed from “income from house property”.
Standard Deduction on “income from house property” – Section 24
30% of annual value will be allowed as tax deduction while calculating income under the head “income from house property”. This deduction is allowed under section 24 irrespective of the amount of expenditure you have spent during the financial year.
For Self occupied property this deduction of 30% is not available as the annual value in this case will be NIL.
Interest on Borrowed capital – Section 24
If capital is borrowed from a bank or any financial institution for the purpose of purchase, construction, repair, renewal or reconstruction of the house property then under section 24, interest amount will be allowed as a tax deduction from house property’s net annual value. Such amount will be allowed as a deduction on due basis i.e. it can be claimed as a deduction even though the amount has not been paid by you during the financial year but charged to your loan account.
If you have taken a loan to repay the first loan then interest amount on the second loan will be allowed as a deduction under section 24 from the net annual value.
If you have taken a loan for acquisition or construction of the house property and during such construction period the interest amount has been accumulated then such accumulated amount can be claimed as a deduction every year for a period of 5 years (1/5th of the amount every year for a 5 years period) under section 24. Construction period are the periods preceding the year of completion of construction.
Example: Suppose you have taken a loan for construction of a house in the year 1999 and construction is completed in 2004. Every year the bank has charged you Rs.1, 00,000 as interest amount. In this case the pre-construction period interest amount is the interest that the bank has charged you from 1999 to 2003 (year preceding the year of construction completion). So for the year 2004 you can claim the current year interest amount of Rs. 1, 00,000 and 1/5th of the preconstruction period amounting to Rs. 1, 00,000(i.e.5, 00,000/5=1, 00,000).
Interest on borrowed capital when the house property is self occupied
When the property is self occupied or unoccupied the interest amount deduction under section 24 will be as follows;
- In case the property is acquired or constructed out of loan borrowed on or after 1/04/1999 and where such acquisition or construction is completed with in a period of 3 years from the end of the financial year in which such loan is borrowed then the interest amount shall be allowed as a deduction up to Rs. 1, 50,000 (Budget 2014 has increased this tax deduction limit from Rs.150000 to Rs. 200000. So for financial year 2014-2015 Rs. 200000 will be allowed as tax deduction instead of Rs. 150000 under section 24)
- In other cases Rs. 30, 000 will be allowed as income tax deduction from income from house property.
Followings are cases where deduction under section 24 will be restricted to Rs. 30, 000;
- Where the loan borrowed has been taken for the purpose of repair, renovation or reconstruction of house property or
- The loan amount is borrowed before 1/04/1999 or
- Loan has been taken to acquire or construct a house but such acquisition or construction not completed with in a period of 3 years
If any interest amount is paid outside India without deduction of tax then such interest amount will not be allowed as a deduction under section 25 of income tax act while calculating income under the head income from house property.