Section 24(b). Interest on borrowed capital (Housing loan)
The deduction on account of interest on borrowed capital is allowed if
1. The loan is borrowed for the purpose of Purchase, Construction, Repairs, Renewal, Reconstruction, Renovation, Repayment of existing housing loan (PCR5).
a. Deduction of interest is available only where there exists a relationship of borrower and lender. (Lender can be any person - Banks, relatives, friends etc).
b. Interest on delayed payment or interest on unpaid interest is not deductible.
c. Penal interest is not allowed as deduction. (Penalty)
d. Where the loan is borrowed for the purpose of payment of municipal tax then interest is not allowed as deduction.
2. Interest should accrue during the relevant previous year. Interest accrues if the loan is outstanding during the previous year. Interest is allowed as deduction on accrual basis and not on actual payment basis.
3. The building should be in existence during the relevant previous year. The building comes into existence in the previous year when construction of building is completed or when the building is purchased. If building is not in existence, interest on borrowed capital is not allowed as deduction.
4 Section 25 Interest payable outside India : Notwithstanding anything contained in section 24, any interest chargeable under this Act* [* Loan is used in India] which is payable outside India, on which tax has not been paid or deducted (S 195), shall not be deducted in computing the income chargeable under the head “Income from house property”.
Pre-construction period interest.
1. The deduction of pre-construction period interest is allowed in 5 equal instalments from the previous year in which building comes into existence.
2. Pre - construction period shall start from the date of borrowing and shall end before the building comes into existence. However if the loan is re-paid before the building comes into existence then pre period shall end on the date of re-payment of loan.
3. If the building comes into existence in the year of loan then there is no pre-period interest.
4. This pre construction period interest is available for residential and commercial house property.
Post-construction period interest.
1. The post construction period always starts from the previous year in which building comes into existence. Where the loan is repaid before the building comes into existence post construction period does not exist.
2. The deduction is allowed every financial year from the year the building comes into existence.
P1: Mr. Taxcrazy borrowed Rs. 1,00,000 @ 12% p.a. on 1-6-2012 for construction of the house. The loan is re-paid on 31-12-2017. The construction of house was completed on 5-9-2014. Compute interest on borrowed capital deductible u/s 24(b) of the Income Tax Act for the AY 2017-18.
|Pre period interest||Post period interest|
|22,000 / 5 = 4,400||Pre||4,400||4,400||4,400||4,400||4,400|
|Total Interest allowed as deduction||16,400||16,400||16,400||13,400||4,400|
P2: Mr. Taxcrazy borrowed Rs.1,00,000 @ 12% p.a. on 1-6-2014 for construction of the house. The construction of house was completed on 7-8-2016. The loan is re-paid on 5-1-2016. Compute interest on borrowed capital deductible u/s 24(b) of the Income Tax Act for the AY 2017-18.
|Pre period interest||Post period interest|
|19,132 / 5 = 3,826||Pre||3,826||3,826||3,826||3,826||3,826|
|Total Interest allowed as deduction||3,826||3,826||3,826||3,826||3,826|
P3: Mr. Taxcrazy borrowed Rs. 1,00,000 @ 12% p.a. for purchase of the house. Compute interest on borrowed capital deductible u/s 24(b) of the Income Tax Act as per the AY 2017-18.
|Case 1||Case 2||Case 3||Case 4||Case 5|
|Date of borrowing||1-10-2008||1-11-2014||1-6-2016||15-7-2013||15-3-2010|
|Date of purchase||1-11-2011||31-3-2017||31-3-2017||31-3-2016||31-3-2015|
|Date of repayment of loan||not paid||1-10-2016||1-3-2017||31-3-2016||31-3-2010|
|Ans||Case 1||Case 2||Case 3||Case 4||Case 5|
Section 25A. Recovery of unrealised rent and Receipt of arrears of rent
(1) The amount of arrears of rent received from a tenant or the unrealised rent realised subsequently from a tenant, as the case may be, by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head “Income from house property”, whether the assessee is the owner of the property or not in that financial year.
(2) A sum equal to 30% of the arrears of rent or the unrealised rent shall be allowed as deduction
Section 26. Property Owned by Co-owners
It states that where a property is owned by 2 or more persons, and respective shares are definite and ascertainable, then
1. Assessment of income from such property is not made as an association of person.
2. The respective share of the co-owners is included in their individual incomes as per S 22 to S 25.
3. Such co-owners are individually entitled to relief u/s 23(2) in respect of self occupied property for residence. Where property is treated as self occupied property for residence, then its GAV is taken as nil.
4. Interest is allowed as deduction to a maximum of Rs.30,000 / Rs. 2,00,000 to each co-owner.