Treatment of Interest against House Property in computation of Income [Section 24(b), 80EE, 80 EEA]

After calculating the gross annual value (GAV) which is fairly simple to compute, most of the confusion to calculate the income under house property lies in computing the amount of interest deductible from the GAV. Section 24(b) of the Income Tax Act, 1961 deals with deduction of interest from the GAV in order to arrive at the net asset value (NAV).

Interest deduction treatment is different depending upon whether the house property is self-occupied or it is let out. In the case of the former, deduction of up to Rs 2, 00,000/- can be availed, while property which is let out full amount of interest can be claimed as deduction. However with effect from FY 2017-18 if the deduction of interest results in a loss then only up to Rs 2, 00,000/- the loss can be set off from the other heads of income, balance left can be carried forward for upto 8 assessment years. In case where the loan is availed after 1st April 1999 and the house property is not purchased/constructed even after 5 years starting from the end of financial year in which the loan is availed then the amount of interest allowed will be restricted to Rs 30,000. (For e.g – Loan was availed on 31st July 2015 therefore to claim maximum deduction on the interest portion the house should be either purchased or constructed by 31st March 2021).

Deduction of Interest on House Property

One important aspect while calculating the interest in the computation of house property income is the allowability of interest pertaining to the period prior to the purchase or construction of property. For all such cases the interest pertaining to prior period is aggregated and allowed in five equal instalments starting from the year in which the income from such property is computed for the first time. It is to be noted that the interest portion cannot be claimed as deduction and claim loss under income from house property during the years when the house is under construction and the loan has been availed for the same.

The interest limit is applicable per assesse. So if a home loan has been taken jointly then both the home loan bearer are entitled to claim the interest separately in their income tax returns provided both of them are legal owners of the property. Also only the interest on home loan is allowed as deduction u/s 24(b) and not the interest on interest.

Two new sections (80EE and 80EEA) have been introduced in the act, one by finance act 2016 and the other by way of finance act 2019 which deals with the deduction of interest over and above section 24(b). Unlike section 24(b) these two sections allow the deduction from the gross total income (GTI) under Chapter VI – A of the act and not from the income under house property. Therefore the assesse must have a positive GTI in order to claim deductions thereunder. Let us discuss some of the salient features pertaining to these:

Section 80EE – Dedution amounting to Rs 50,000 is allowed in addition to deduction under section 24(b).

  • The loan should be sanctioned between 1st April 2016 – 31st March 2017.
  • The value for the property should not exceed Rs 50 lacs and the sanctioned loan amount should not exceed Rs 35 lacs.
  • The purchaser should be a first time home buyer also this is applicable only in case of residential house property.
  • The benefit will be applicable till the time of repayment of loan continues.

Section 80EEA – Additional deduction amounting to Rs 1,50,000 is allowed in addition to deduction under section 24(b).

  • The loan should be sanctioned between 1st April 2019 – 31st March 2020.
  • The stamp duty value of the house should not exceed Rs 45 lacs.
  • The carpet area of the house should not exceed 60 sqmtr in metro cities and 90 sqmtr in other cities.
  • Only the individual is allowed to claim the deduction under this section provided he does not own any other house property.

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Qualification: CA in Practice
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Location: LUCKNOW, Uttar Pradesh, IN
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