Additional Deduction on Home Loan under section 80EE of Income Tax Act

Finance Bill of 2013 (Subject to approval by Parliament of India)  has inserted the new section 80EE in the Income Tax Act, 1961 for giving additional deduction benefits for interest payable on loan, taken between 1.04.2013 to 31.03.2014 for new house and maximum allowable deduction is Rs 1 lakh to individual assessee as their house warming gift but this additional deduction of subject to certain conditions.  Like Loan take between 1.04.2013 to 31.03.2014, Loan Amount of cannot exceed Rs 25 Lakhs, Value of House must be less than Rs 40 Lakhs and person should not own other house property. Read Investment Option for Claiming Deduction under Income Tax

  1. The loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2013 and ending on the 31st day of March, 2014;
  2. The amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;
  3. The value of the residential house property does not exceed forty lakh rupees;
  4. The assessee does not own any residential house property on the date of sanction of the loan.

Reference: Section 80EE of the Income Tax Act, 1961

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 provisions of the Act for the same or any other assessment year.

‘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 house property.
(2) The deduction under sub-section (1) shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of 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 the 1st day of April, 2015.
(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, 2013 and ending on the 31st day of 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.
(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 provisions of the 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 applies including 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.’.

Income Tax 80C Deduction for life insurance, provident fund, ULIP, Mutual Fund,tuition fees, Housing Installment, Term Deposit, NSC

Income Tax Deduction under section 80C of the Income Tax Act, 1961, to individual and HUF for making investment in different tax saving investments. This Income Tax Deduction under section 80C cannot exceed Rs 100000/-(Rs1Lakhs). So Individual can save upto Rs 1 Lakhs by making investment in tax saving schemes given in section 80C of the Income Tax Act. One has to plan Income Tax saving Investment for year from starting of the year. So Tax Planning for Year 2013-14 or AY 2014-15 can be done in the Year 2013-14 and time period for Tax Planning Investment for Year 2012-13 is over on 31st March 2013. So any investment made after 31st March 2012 will be take for Year 2013-14 for Income tax benefit.

Eligible Persons: Individual and HUF (Hindu Undivided Family)

Maximum Deduction: Rs 1 Lakhs only (Rs 100,000/-)

Different Tax Saving Investment for Income Tax Saving and conditions for claiming these income tax benefits.

  1. Life Insurance and Premium thereof for in the case of an individual, the individual, the wife or husband and any child of such individual, and in the case of a Hindu undivided family, any member thereof.
  2. Deferred annuity for an individual, the individual, the wife or husband and any child of such individual
  3. Deduction for Deferred Annuity for Government Employee only and maximum sum is 1/5th or 20% of salary
  4. contribution/investment to Provident fund, recognised provident fund, approved superannuation fund
  5. contribution/investment Unit-linked Insurance Plan
  6. Investment in Tax Saving Mutual Fund Plan or contribution by an individual to any pension fund set up by any Mutual Fund.
  7. Investment in pension fund set up by, the National Housing Bank
  8. Payment of tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter  to any university, college, school or other educational institution situated within India for the purpose of full-time education of any of in the case of an individual, any two children of such individual.
  9. Repayment of loan or borrowed money taken for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head “Income from house property” and Deduction amount include payment of stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee but exclude the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out.
  10. Term Deposit for 5  year with with a scheduled bank  and scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank, being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);
  11. Investment in the Bonds of National Bank for Agriculture and Rural Development (NABARD)
  12. Investment in an account under the Senior Citizens Savings Scheme Rules, 2004
  13. Investment in 5 year term deposit by Post Office .i,.e NSC by Indian Post.  If any amount, including interest accrued thereon, is withdrawn by the assessee from his account from Senior Citizen scheme or NSC, before the expiry of the period of five years from the date of its deposit, the amount so withdrawn shall be deemed to be the income of the assessee of the previous year in which the amount is withdrawn and shall be liable to tax in the assessment year relevant to such previous year: Provided that the amount liable to tax shall not include the following amounts, namely:—  (i)  any amount of interest, relating to deposits referred to SCS and NSC, which has been included in the total income of the assessee of the previous year or years preceding such previous year; and (ii)  any amount received by the nominee or legal heir of the assessee, on the death of such assessee, other than interest, if any, accrued thereon, which was not included in the total income of the assessee for the previous year or years preceding such previous year.

Meaning of insurance” shall include—

 (a)  a policy of insurance on the life of an individual or the spouse or the child of such individual or a member of a Hindu undivided family securing the payment of specified sum on the stipulated date of maturity, if such person is alive on such date notwithstanding that the policy of insurance provides only for the return of premiums paid (with or without any interest thereon) in the event of such person dying before the said stipulated date;

(b)  a policy of insurance effected by an individual or a member of a Hindu undivided family for the benefit of a minor with the object of enabling the minor, after he has attained majority to secure insurance on his own life by adopting the policy and on his being alive on a date (after such adoption) specified in the policy in this behalf;

Reference Section 80C of Income Tax Act,1961

Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc.

80C. (1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed one lakh rupees.

(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assessee—

 (i)  to effect or to keep in force an insurance on the life of persons specified in sub-section (4);

(ii)  to effect or to keep in force a contract for a deferred annuity, not being an annuity plan referred to in clause (xii), on the life of persons specified in sub-section (4):

Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity;

(iii) by way of deduction from the salary payable by or on behalf of the Government to any individual being a sum deducted in accordance with the conditions of his service, for the purpose of securing to him a deferred annuity or making provision for his spouse or children, in so far as the sum so deducted does not exceed one-fifth of the salary;

(iv) as a contribution by an individual to any provident fund to which the Provident Funds Act, 1925 (19 of 1925) applies;

(v) as a contribution to any provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of any person specified in sub-section (4);

(vi) as a contribution by an employee to a recognised provident fund;

(vii)  as a contribution by an employee to an approved superannuation fund;

(viii) as subscription to any such security of the Central Government or any such deposit scheme as that Government may, by notification in the Official Gazette, specify in this behalf;

(ix) as subscription to any such savings certificate as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(x) as a contribution, in the name of any person specified in sub-section (4), for participation in the Unit-linked Insurance Plan, 1971 (hereafter in this section referred to as the Unit-linked Insurance Plan) specified in Schedule II of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(xi) as a contribution in the name of any person specified in sub-section (4) for participation in any such unit-linked insurance plan of the LIC Mutual Fund referred to in clause (23D) of section 10, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(xii) to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation or any other insurer as the Central Government may, by notification in the Official Gazette, specify;

(xiii)  as subscription to any units of any Mutual Fund [referred to in] clause (23D) of section 10 or from the Administrator or the specified company under any plan formulated in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(xiv) as a contribution by an individual to any pension fund set up by any Mutual Fund referred to in] clause (23D) of section 10 or by the Administrator or the specified company, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(xv) as subscription to any such deposit scheme of, or as a contribution to any such pension fund set up by, the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987) (hereafter in this section referred to as the National Housing Bank), as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(xvi) as subscription to any such deposit scheme of—

 (a) a public sector company which is engaged in providing long-term finance for construction or purchase of houses in India for residential purposes; or

(b)  any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both,

as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(xvii) as tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter,—

(a)  to any university, college, school or other educational institution situated within India;

(b)  for the purpose of full-time education of any of the persons specified in sub-section (4);

(xviii) for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head “Income from house property” (or which would, if it had not been used for the assessee’s own residence, have been chargeable to tax under that head), where such payments are made towards or by way of—

(a)  any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or

(b)  any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or

(c)  repayment of the amount borrowed by the assessee from—

(1)  the Central Government or any State Government, or

(2)  any bank, including a co-operative bank, or

(3)  the Life Insurance Corporation, or

(4)  the National Housing Bank, or

(5) any public company formed and 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 which is eligible for deduction under clause (viii) of sub-section (1) of section 36, or

(6) any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or

(7)  the assessee’s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or

(8)  the assessee’s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society; or

(d)  stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee,

but shall not include any payment towards or by way of—

(A)  the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member; or

(B)  the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or

(C)  any expenditure in respect of which deduction is allowable under the provisions of section 24;

(xix) as subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board on an application made by a public company or as subscription to any eligible issue of capital by any public financial institution in the prescribed form.

Explanation.—For the purposes of this clause,—

(i)  “eligible issue of capital” means an issue made by a public company formed and registered in India or a public financial institution and the entire proceeds of the issue are utilised wholly and exclusively for the purposes of any business referred to in sub-section (4) of section 80-IA;

(ii)  “public company” shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);

(iii) “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

(xx) as subscription to any units of any mutual fund referred to in clause (23D) of section 10 and approved by the Board on an application made by such mutual fund in the prescribed form:

Provided that this clause shall apply if the amount of subscription to such units is subscribed only in the eligible issue of capital of any company.

Explanation.—For the purposes of this clause “eligible issue of capital” means an issue referred to in clause (i) of the Explanation to clause (xix) of sub-section (2);

(xxi) as term deposit—

(a)  for a fixed period of not less than five years with a scheduled bank; and

(b)  which is in accordance with a scheme framed and notified, by the Central Government, in the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank, being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);]

[(xxii) as subscription to such bonds issued by the National Bank for Agriculture and Rural Development, as the Central Government may, by notification in the Official Gazette, specify in this behalf;]

[(xxiii) in an account under the Senior Citizens Savings Scheme Rules, 2004;

(xxiv) as five year time deposit in an account under the Post Office Time Deposit Rules, 1981.]

(3) The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on an [insurance policy other than a contract for a deferred annuity] as is not in excess of twenty per cent of the actual capital sum assured.

Explanation.—In calculating any such actual capital sum assured, no account shall be taken—

 (i)  of the value of any premiums agreed to be returned, or

(ii)  of any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.

The following sub-section (3A) shall be inserted after sub-section (3) of section 80C by the Finance Act, 2012, w.e.f. 1-4-2013 :

(3A) The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on an insurance policy, other than a contract for a deferred annuity, issued on or after the 1st day of April, 2012 as is not in excess of ten per cent of the actual capital sum assured.

Explanation.—For the purposes of this sub-section, “actual capital sum assured” in relation to a life insurance policy shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account—

(i)  the value of any premium agreed to be returned; or

(ii) any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.

(4) The persons referred to in sub-section (2) shall be the following, namely:—

(a)  for the purposes of clauses (i), (v), (x) and (xi) of that sub-section,—

 (i)  in the case of an individual, the individual, the wife or husband and any child of such individual, and

(ii)  in the case of a Hindu undivided family, any member thereof;

(b)  for the purposes of clause (ii) of that sub-section, in the case of an individual, the individual, the wife or husband and any child of such individual;

(c)  for the purposes of clause (xvii) of that sub-section, in the case of an individual, any two children of such individual.

(5) Where, in any previous year, an assessee—

(i)  terminates his contract of insurance referred to in clause (i) of sub-section (2), by notice to that effect or where the contract ceases to be in force by reason of failure to pay any premium, by not reviving contract of insurance,—

(a)  in case of any single premium policy, within two years after the date of commencement of insurance; or

(b)  in any other case, before premiums have been paid for two years; or

(ii)  terminates his participation in any unit-linked insurance plan referred to in clause (x) or clause (xi) of sub-section (2), by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation have been paid for five years; or

(iii) transfers the house property referred to in clause (xviii) of sub-section (2) before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified in that clause,

then,—

 (a)  no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums, referred to in clauses (i), (x), (xi) and (xviii) of sub-section (2), paid in such previous year; and

(b)  the aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.

(6) If any equity shares or debentures, with reference to the cost of which a deduction is allowed under sub-section (1), are sold or otherwise transferred by the assessee to any person at any time within a period of three years from the date of their acquisition, the aggregate amount of the deductions of income so allowed in respect of such equity shares or debentures in the previous year or years preceding the previous year in which such sale or transfer has taken place shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.

Explanation.—A person shall be treated as having acquired any shares or debentures on the date on which his name is entered in relation to those shares or debentures in the register of members or of debenture-holders, as the case may be, of the public company.

(6A) If any amount, including interest accrued thereon, is withdrawn by the assessee from his account referred to in clause (xxiii) or clause (xxiv) of sub-section (2), before the expiry of the period of five years from the date of its deposit, the amount so withdrawn shall be deemed to be the income of the assessee of the previous year in which the amount is withdrawn and shall be liable to tax in the assessment year relevant to such previous year:

Provided that the amount liable to tax shall not include the following amounts, namely:—

 (i)  any amount of interest, relating to deposits referred to in clause (xxiii) or clause (xxiv) of sub-section (2), which has been included in the total income of the assessee of the previous year or years preceding such previous year; and

(ii)  any amount received by the nominee or legal heir of the assessee, on the death of such assessee, other than interest, if any, accrued thereon, which was not included in the total income of the assessee for the previous year or years preceding such previous year.]

(7) For the purposes of this section,—

(a)  the insurance, deferred annuity, provident fund and superannuation fund referred to in clauses (i) to (vii);

(b)  unit-linked insurance plan and annuity plan referred to in clauses (xii) to (xiiia);

(c)  pension fund and subscription to deposit scheme referred to in clauses (xiiic) to (xiva);

(d)  amount borrowed for purchase or construction of a residential house referred to in clause (xv),

of sub-section (2) of section 88 shall be eligible for deduction under the corresponding provisions of this section and the deduction shall be allowed in accordance with the provisions of this section.

(8) In this section,—

(i)  “Administrator” means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(ii)  “contribution” to any fund shall not include any sums in repayment of loan;

(iii) “insurance” shall include—

 (a)  a policy of insurance on the life of an individual or the spouse or the child of such individual or a member of a Hindu undivided family securing the payment of specified sum on the stipulated date of maturity, if such person is alive on such date notwithstanding that the policy of insurance provides only for the return of premiums paid (with or without any interest thereon) in the event of such person dying before the said stipulated date;

(b)  a policy of insurance effected by an individual or a member of a Hindu undivided family for the benefit of a minor with the object of enabling the minor, after he has attained majority to secure insurance on his own life by adopting the policy and on his being alive on a date (after such adoption) specified in the policy in this behalf;

(iv) “Life Insurance Corporation” means the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956);

(v) “public company” shall have the same meaning as in section 34 of the Companies Act, 1956 (1 of 1956);

(vi) “security” means a Government security as defined in clause (2) of section 25 of the Public Debt Act, 1944 (18 of 1944);

(vii) “specified company” means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(viii) “transfer” shall be deemed to include also the transactions referred to in clause (f) of section 269UA.

Deduction in Respect of Rent Paid under Section 80GG

Income Tax Deduction in respect of Rent Paid under Section 80GG of the Income Tax Act, 1961.Section 80GG is applicable to individual salaried taxpayer who is not receiving House rent allowance (HRA) and should not own any residential accommodation. Then individual can claim deduction for rent paid subject to maximum of Rs 2,000/- per month.

Conditions and Calculation for deduction under section 80GG

  1. The taxpayer should be an Individual
  2. The taxpayer is an employee but he does not get house rent allowances during the previous year from the employer
  3. The taxpayer files a declaration in form no. 10BA* regarding the expenditure incurred by him towards payment of rent. : Download Income Tax Form 10BA
  4. The persons (taxpayer, spouse, adopted/minor child or HUF of which the taxpayer is member) should not own any residential accommodation.
  5. If the taxpayer owns a residential accommodation at any other place, then in respect of that house the concession is not claimed by him [under sec. 23(2)(a) or 23(4)9a). 

Amount of deduction-

Least of the following-

  • Rs. 2,000 per month
  • 25 % of adjusted GTI
  • The excess of actual rent paid over 10% of total income.
  • Actual amount paid

Adjusted GTI=

Gross total income
Less: Long term capital gains
Less: Short term capital gain (at the rate of 15%)(sec.111A)
Less: Income referred to in (sec. 115A or 115D)
Less: Amount deductible (80CCC to 80U)( except 80GG)

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

Total income for the purpose of section 80GG

XXXXX

Notes:-

  1. If the assessee resides in a concessional house provided by the deduction in respect of rent paid can be claimed under this section.
  2. The assessee must submit a declaration in Form No. 10BA alongwith the return of income.

List of Income Tax Deduction under section 80C, 80CCG, 80D, 80DD, 80E,80G, 80GG to 80U

Overview of Income from House Property

Income from house property is chargeable under Section 22 of the Income tax Act, 1961

Income from building or house property is only taxable for owner of a such building or property which is not used for business or profession. Supreme Court in the case of CIT v. Podar Cement (P) Ltd. (1997) ‘owner’ is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted.

Thus these three conditions must be fulfilled for charging Income under section 22:

Condition. 1

the property should consist of any building or land appurtenant thereto

Condition 2

The assessee must be the owner of the property.

Condition 3

The property should not be used by the owner for the purpose of any business or profession Carried on by him.

Owner of House Property

  • Owner can be legal or deemed
  • Income from subletting is not chargeable under this head.

Reference: Income from house property under 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

Deemed Ownership-Section 27:

In the following cases for the purpose of computing income from House Property (sec-27) the persons are deemed owners of the House Property:

  • An Individual, who transfers house property to his or her spouse (not being a transfer with an agreement or to his minor child (not being a married daughter) is treated as a deemed owner. The holder of an impartibly estate is called deemed owner.
  • A member of a co-operative society, company or other association of persons, to whom a building part or leased under a house building scheme of the society, association of person or company, is treated as deemed owner.
  • Or a person who comes to have control over the property in part performance of a contract.

Determination of Income from house property under section 23 of the Income Tax Act, 1961.

Basis of computing income from

Income from let out house property:

Gross annual value

Less : Municipal taxes ________________

Net annual value

Less: Deduction under sec. 24

Income from house property

Gross Annual value section 23(1)-

The gross annual value is determined as follows-

Step I

Find out reasonable expected rent

Step II

Find out rent actually received or receivable after excluding unrealized rent but before deducting loss

Step III

Find out which one is higher : I OR II

Step IV

Find out loss because of vacancy

Step V

III MINUS IV is gross annul value

Income from self occupied house property Section 23(2)(a)

A property will be considered SOP and above computation will be allowed if following conditions satisfied:

  1. The property is not actually let out during whole or any part of the previous year.
  2. No other benefit is derived there from.

How to Claim deduction for unrealised Rent

As per Income Tax Rule 4, owner can claim such amount as deduction under section 23 which is payable and unpaid by the tenant and tenancy is real .i.e bona fide, defaulting tenant has vacated or steps have been taken to compel him to vacate the property, the defaulting tenant is not in occupation of any other property of the assessee and assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless

Reference: Annual value how determined under section 23 of Income Tax Act, 1961

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 rules 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.

Reference: Unrealised rent under Rule 4 of Income Tax Rules

4. For the purposes of the Explanation below sub-section (1) of section 23, the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where,—

(a) the tenancy is bona fide;

(b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;

(c) the defaulting tenant is not in occupation of any other property of the assessee;

(d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

How to Compute of Income under Head House Property

Computation of Income from House property and deduction on home loan interest under section 24 of Income Tax Act, 1961

CONDITIONS NECESSARY FOR TAXING INCOME FROM HOUSE PROPERTY These are:
• The property should consist of any building or land appurtenant thereto
• The assessee should be the owner of the property
• The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax.

Unless all the aforesaid conditions are satisfied, the property income cannot be charged to tax under the head ‘Income from House property’.

Gross annual value.

Less: municipal tax paid by landlord during the year

Net annual value

Less: deduction u/s 24*

(a) standard deduction 30% of Net annual value

(b) interest on borrowed capital

Income from house property

 

 

 

 

xxx

xxx

xxx

xxx

xxx

xxx

 

 

xxx

*Deduction is available on accrual basis.

  1. Interest payment for self occupied house for acquisition or construction within 3 years from the end of previous year in which loan was taken is up to Rs. 1,50,000, if loan taken on or after 1 April 1999
  2. Interest payment for re-construction, repairs or renewals is up to Rs. 30,000, if loan taken before 1 April 1999 or loan taken on or after 1 April 1999 but for the purpose of repair or if for acquisition or construction but house is not completed within 3 years.

Other Permissible Deductions from Annual Value in cases of let out properties (Section 24)
The following deductions are permissible:
(i) deduction equal to 30% of the annual value, irrespective of any expenditure incurred by the taxpayer (S.24(a)). No other allowance for repairs, maintenance etc. would be allowable.
(ii) interest on borrowed capital (S. 24(b)) Interest on borrowed capital is allowable as deduction on accrual basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction,repair, renewal or reconstruction of the house property.
The following aspects concerning claim for deduction of interest are to be kept in view:
(i) The interest is deductible on ‘payable’ basis i.e. on accrual basis. Hence it should be claimed on yearly basis even if no payment has been made during the year.

(ii) For claiming interest, it is not necessary that the lender should have a charge on the property for the principal amount or the interest amount.
(iii) In Shew Kissan Bhatter v. CIT (1973) 89 ITR 61 (SC) the Supreme Court has decided that interest payable for outstanding interest is not deductible.
(iv) Taxpayer cannot claim deduction for any brokerage or commission paid for arranging loan either as a one time arrangement or on periodical basis till the loan continues.
(v) In terms of circular No. 28 dated 20th August 1969, if an assessee takes a fresh loan to pay back the earlier loan, the interest on the fresh loan would be deductible.
(vi) Interest on borrowing can be claimed as deduction only by the person who has acquired or constructed the property with borrowed fund. It is not available to the successor to the property (if the successor has not utilized borrowed funds for acquisition, etc). In other
words, the relationship of borrower and lender must come into existence before it can be said that any amount or any other money is borrowed for the purpose of construction, acquisition, etc., of house property by one person from another and there must be real transaction of borrowing and lending in order to amount to any borrowing.
(vii) In case of Central Government employees, interest on house building advance taken under the House Building Advance Rules (Ministry of Works and Housing) would be deductible on the basis of accrual of interest which would start running from the date of drawal of advance. The interest that accrues in terms of rule 6 of the House Building Advance Rules is on the balances outstanding on the last day of each month – Circular No. 363, dated June 24, 1983.

(viii) Any interest chargeable under the Act, payable out of India on which tax has not been paid or deducted at source, and in respect of which there is no person in India who may be treated as an agent, is not deductible, by virtue of Section 25, in computing income chargeable under the head “Income from house property”.

Interest for pre-construction period
Money may be borrowed prior to the acquisition or construction of the property. In such a case, interest paid/ payable before the final completion of construction or acquisition of the property will be aggregated and allowed for five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilized for repairs, renewal or reconstruction.
Example:- The assessee took a loan of Rs. 3,00,000/- in April, 1999 from a Bank for construction of a house on a piece of land which he owns at Meerut. The loan carried
interest @ 15% p.a. The construction is completed in April 2001 and the house is given on rent from May 2001. Meanwhile he has already incurred liability of interest of Rs. 90,000/- for F.Y. 1999-2000 and 2000-01. Because of the above provision, the assessee can claim a deduction in respect of this interest of Rs. 90,000/- (Over and above the yearly interest) in five equal instalments of Rs. 18,000/- each starting from the assessment year 2002-03.