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Unit 8: Income from House Property

18. ………………………..is the rent normally charged for similar house properties in the Notes
same locality.
19. …………………………is the maximum rent which a person can legally recover from his
tenant under a Rent Control Act.

8.5 Deductions under Section 24

Two deductions will be allowed from the net annual value (which is gross annual value less
municipal taxes) to arrive at the taxable income under the head ‘income from house property’.
It has to be borne in mind that the deductions mentioned here (section 24) are exhaustive and no
other deductions are allowed. The deductions admissible are as under:

Statutory Deduction

30 per cent of the net annual value will be allowed as a deduction towards repairs and collection
of rent for the property, irrespective of the actual expenditure incurred.

Interest on Borrowed Capital

The interest on borrowed capital will be allowable as a deduction on an accrual basis if the
money has been borrowed to buy or construct the house. Amount of interest payable for the
relevant year should be calculated and claimed as deduction. It is immaterial whether the
interest has actually been paid during the year or not. However, there should be a clear link
between the borrowal and the construction or purchase etc., of the property. If money is borrowed
for some other purpose, interest payable thereon cannot be claimed as deduction.
The following points are to be kept in mind while claiming deduction on account of interest on
borrowed capital:

1. In case the property is let out, the entire amount of interest accrued during the year is
deductible. The borrowals may be for construction/acquisition or repairs/renewals.
2. A fresh loan may be raised exclusively to repay the original loan taken for purchase or
construction etc., of the property. In such a case also, the interest on the fresh loan will be
allowable.
3. Interest payable on interest will not be allowed.
4. Brokerage or commission paid to arrange a loan for house construction will not be allowed.
5. When interest is payable outside India, no deduction will be allowed unless tax is deducted
at source or someone in India is treated as agent of the non-resident.

Interest Attributable to Period Prior to Construction/Acquisition

Money may be borrowed prior to the acquisition or construction of the property. In such a case,
the period commencing from the date of borrowing and ending on the date of repayment of
loan or on March 31 immediately preceding the date of acquisition or completion of construction,
whichever is earlier, is termed as the pre-construction period. The interest paid or payable for
the pre-construction period is to be aggregated and claimed as deduction in five equal instalments
during five successive financial years starting with the year in which the acquisition or
construction is completed.

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