SECTION 24 – DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY

212. House building advance taken by the Central Government servants under House Building Advance Rules – Whether interest on such advance can be allowed as deduction under sub-section (1)(vi) when interest becomes due or when it is actually paid

1. I am directed to say that the Board has considered the question whether interest on house building advance taken by the Central Government servants under the House Building Advance Rules of the Ministry of Works & Housing can be allowed as deduction when the interest becomes due or when it is actually paid.

2. Under rule 6 of the House Building Rules, advances granted to Central Government servants carry interest which runs from the date of advance.  The following table gives the rate of interest :

     a.   4½ per cent per annum on all advances sanctioned up to October 1963.

     b.   5 per cent per annum on advances sanctioned from October 16,1963 to June 22, 1965.

      c.   5½ per cent per annum on advances sanctioned from June 23, 1965 to May 31, 1971.

     d.   6 per cent per annum on advances sanctioned from June 1, 1971 to March 31, 1974.

      e.   6½ per cent per annum on advances sanctioned from April 1, 1974 to August 5, 1975.

      f.    The following differential rates of interest on advances sanctioned on or after August 1975 :

     (i)   6½ per cent per annum for the first Rs. 25,000.

    (ii)   8 per cent per annum for the next Rs. 25,000, viz,, Rs. 25,001 to Rs. 50,000.

  (iii)   10 per cent per annum for the next Rs. 20,000, viz., Rs. 50,001 to Rs.70,000.

     g.   The rates of interest on house building cases sanctioned after June 1, 1981 will be as under:

     (i)   7 per cent per annum for advances up to Rs. 25,000.

   (ii)   8½ per cent per annum for advances between Rs. 25,001 to Rs. 50,000; and

  (iii)   10½ per cent per annum for the amount between Rs. 50,001 to Rs. 70,000.

3. Under rule 8A(a ) the advance together with interest thereon is to be paid in full by monthly instalments within a period not exceeding 20 years.  The recovery of the principal is made first in not more than 180 monthly instalments and then interest is recovered in not more than 60 instalments.

4. Under section 24(1)(vi ) of the Income-tax Act, 1961 where property has been acquired or constructed with borrowed capital, a deduction in respect of amount of interest payable on such capital is allowed in computing the income from house property.  Since the word used is ‘payable’, deduction under section 24(1) (vi ) would be on the basis of accrual of interest which would start running from the date of the drawal of the advance.  The interest that accrues is to be calculated annually in terms of rule 6 of the House Building Advance Rules on the balances outstanding on the last day of each month.

5. The above instructions may be brought to the notice of all the Income-tax Officers working in your charge.  If any appeals are pending on this point they may be conceded in favour of the assessees.

Circular : No. 363 [F.  No. 168/4/82-IT(A-I)], dated 24-6-1983.

Note :  This circular was referred to in M. Raghunandan v. ITO [1985] Taxation 77(6) – 43 (ITAT-Mad.-SB).

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