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Income or Loss on House Property Calculation – From the Financial Year 2017-18 Section 24 of Income Tax Act allows only Rs. 2 lakh as Exempted income / Loss allowed to deducted from Income in respect of Interest paid on Housing Loan even in the case of House Property is rented out.
While having discussion with many of the Personal Income Tax Payers known to us it came to light that they did not aware of the restriction of exemption allowed / Loss allowed to deducted from Income in respect of Interest paid on Housing Loan to Rs. 2 lakh even in the case of Housing Property is rented out.
The Relevant Portions on determination of Income or Loss on House Property are as follows:
Income from house property.
Section 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head “Income from house property”.
Annual value how determined.
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be—
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :
Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.
Explanation.—For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules22 as may be made in this behalf, the amount of rent which the owner cannot realise.
(2) Where the property consists of a house or part of a house which—
(a) is in the occupation of the owner for the purposes of his own residence; or
(b) 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,
the annual value of such house or part of the house shall be taken to be nil.
(3) The provisions of sub-section (2) shall not apply if—
(a) the house or part of the house is actually let during the whole or any part of the previous year; or
(b) any other benefit therefrom is derived by the owner.
(4) Where the property referred to in sub-section (2) consists of more than one house—
(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let.
Following sub-section (5) shall be inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 1-4-2018 :
(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.
Deductions from income from house property.
24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—
(a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:
Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :
Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within 24[five] years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed two lakh rupees.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:
Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.
Deduction in respect of interest on loan taken for residential house property.
80EE. (1) 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 property.
(2) The deduction under sub-section (1) shall not exceed fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2017 and subsequent assessment years.
(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—
(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2016 and ending on the 31st day of March, 2017;
(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed thirty-five lakh rupees;
(iii) the value of residential house property does not exceed fifty lakh rupees;
(iv) the assessee does not own any residential house property on the date of sanction of loan.
(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.
(5) For the purposes of this section,—
(a) “financial institution” means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies, or any bank or banking institution referred to in section 51 of that Act or a housing finance company;
(b) “housing finance company” means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.]
Home Loan Interest deduction is now limited to Rs. 2 lakh only in all of the following cases –
(1) property is rented out
(2) self-occupied property
This restriction will also be applicable for second self occupied property.
An Illustrative Income or Loss from House Property Calculation is as follows
|Loss allowed to deducted / exemption on interest on Housing loan||2016-17||2017-18|
(Rs. 20,000 for 12 months)
|Less : Municipal Taxes Paid||5000||5000|
|less: Standard Deduction(30% * 240000)||72000||72000|
|Less: Interest on House loan||520000||520000|
|Loss from house property allowed to be deducted|
AP = 70% of Rental Income – Municipal Tax
Where AP is Annual Rental Value minus allowed deductions
Loss from House Property = Interest on Housing Loan – Annual Rental Value minus allowed deductions
(maximum limit allowed )
Illustrative Calculation to set off Loss on House Property
|Income from remaining heads||10,00,000||10,00,000|
|Loss from house Property||(3,57,000)||(2,00,000)|
|Total Taxable Income*||6,43,000||8,00,000|
|Income Tax to Paid||41,100||72,000|
Checkout this Calculator for Income or Loss from House Property (Calculation of IT exemption for Interest on Housing Loan)