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Income or loss on House property – Revision in calculation method with respect to interest paid on housing loan
Update: 25th September 2017: Income Tax Exemption on Interest Paid on Housing Loan – Capped at Rs. 2 lakh for rented property also
Update : After Budget 2014, Income Tax Exemption / Deduction allowed from Income in respect of Interest payable on Housing Loan has been increased to Rs. 2 lakh. Click here to get Revised GConnect Calculator for Exemption for Interest paid on Housing Loan
Readers must be aware that method of calculating income or loss on house property has been changed subsequent on introduction of additional interest rebate of Rs. 1 lakh for new housing loans received in the year 2013-2014. Over and above the standard interest rebate Rs. 1.5 lakh this additional interest rebate will be applicable only if the housing loan amount did not exceed Rs. 25 lakhs; that total cost of house did not exceed Rs. 40 lakhs and that the housing loan is disbursed in the year 2013-14 (assessment year 2014-15).
The extract of Finance Bill 2013-14 which has made change in the Rebate on Interest paid on Housing Loan for certain categories is given below. Click here to read all the portions of Finance Bill 2013 -14 that affects Salaried Class Employees
DEDUCTION IN RESPECT OF INTEREST ON LOAN SANCTIONED DURING FINANCIAL YEAR 2013-14 FOR ACQUIRING RESIDENTIAL HOUSE PROPERTY
Under the existing provisions of section 24 of the Income-tax Act, income chargeable under the head ‘Income from House Property’ is computed after making the deductions specified therein. The deductions specified under the aforesaid section are as under:-
i. A sum equal to thirty per cent of the annual value;
ii. Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.
It has also been provided that where the property consists of a house or part of a house which is in the occupation of the owner for the purposes of his own residence or cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, then the amount of deduction as mentioned above shall not exceed one lakh fifty thousand rupees subject to the conditions provided in the said section.
Keeping in view the need for affordable housing, an additional benefit for first-home buyers is proposed to be provided by inserting a new section 80EE in the Income-tax Act relating to deduction in respect of interest on loan taken for residential house property.
The proposed new section 80EE seeks to provide that in computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.
It is further provided that the deduction under the proposed section shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on 1st April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on 1st April, 2015.
It is also provided that the deduction shall be subject to the following conditions:-
(i) the loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st March, 2014;
(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;
(iii) the value of the residential house property does not exceed forty lakh rupees; (iv) the assessee does not own any residential house property on the date of sanction of the loan.
It is also provided that where a deduction under this section is allowed for any assessment year, in respect of interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Income-tax Act for the same or any other assessment year.
It is also proposed to define the term “financial institution”.
This amendment will take effect from 1st April, 2014 and accordingly apply in relation to the assessment year 2014-15 and subsequent assessment year.
How to calculate Income or Loss on House Property
Interest on loans taken to buy a house is deductible under the Income Tax Act while computing income under the head ‘Income from House Property’. The relevant provisions for this are contained under Section 24 of the Income Tax Act. The interest is allowed as a deduction on accrual basis – on due basis, even if it has not actually been paid during the year.
The money can be borrowed for construction, acquisition, repair or reconstruction of property.
|Formula to Calculate Income or Loss on House Property (negative value implies loss)|
|Income or Loss on House Property||= (Annual Rental Value of House property – Property Tax) – 30% of (Annual Rental Value-property tax)-Interest paid on Housing Loan|
Click the link below for Detailed discussion of each term involved in the above calculation
The following Calculator estimates income or loss on house property at ease