Page 239 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes
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Caution This deduction is not allowed if the loan is utilized for repairs, renewal or
reconstruction.

Example: X takes a loan of ` 10, 00,000 @ 12% p.a. on July1, 2001 for the construction of a
house property. The construction of the property is completed on January15, 2004. Calculate the
amount of interest deductible in the different previous years.

Solution:
12% of ` 10, 00,000 = ` 12,000 will be deductible from the annual value of the house property
every year till the loan is repaid. Interest for the pre-construction period i.e. from July 1, 2001 to
March 31, 2003 (immediately preceding the previous year during which the construction of the
house property is completed) will be ` 12,000 × 21/12 = ` 21,000. It will be deductible in 5 equal
instalments of ` 4,200 each starting from the previous year in which the construction is completed
i.e. 2003–04. Therefore, the total amount deductible as interest on borrowed capital for the first
5 previous years 2003–04, 2004–05, 2005–06, 2006–07 and 2007–08 will be ` 12,000 + 4,200 =
` 16,200.

Task X took a loan of ` 1, 00,000 @ 15% per annum on May 1, 2004 for the construction of
his house. The construction of the house was completed on January 31, 2006. Calculate the
amount of interest deductible in the previous year 2005–06.

Self Assessment

State whether the following statements are true or false:

20. Two deductions will be allowed from the net annual value to arrive at the taxable income
under the head ‘Income from house property’.
21. 33 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.
22. 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.

23. 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
not allowable as deduction.

8.6 Computation of Income from Self-occupied House Property

The annual value of one self-occupied house property, which has not been actually let out at any
time during the previous year, is taken as ‘Nil’ [Section 23(2) (a)]. From the annual value, only
the interest on borrowed capital is allowed as a deduction under section 24. The amount of
deduction will be:
Either the actual amount accrued or ` 30,000/- whichever is less
When borrowal of money or acquisition of the property is after 31.3.1999 - deduction is
` 1,50,000/- applicable to A.Y 2002–03 and onwards.

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