House Property Income – Increase Interest Limit to 3 Lakh, Allow deduction for unrealised rent and Lease Rent

In Its Pre-budget Memorandum on Direct Taxes Apex Accounting Institute ICAI has suggested that deduction in respect of interest on housing loan in case of self occupied property should be increased from Rs. 1.5 Lakhs to Rs. 3 Lakhs. ICAI further suggested that Assessee should be allowed deduction equal to 30% from unrealised rent and ground rent shall be allowed as separate deduction while computing income under the head “Income from House property”.

Interest on borrowed Capital :

Keeping in mind the prices of the house properties and also the rate of interest on housing loan, it is felt that the deduction under section 24(b) in respect of Interest on borrowed capital for self-occupied property is very less.

Therefore, it is suggested that the deduction in respect of interest on housing loan in case of self occupied property should be increased from Rs. 1.5 Lakhs to Rs. 3 Lakhs.

Deduction u/s 24(a) of the Income-tax Act, 1961:

a) Section 25B provides that the arrears of rent received after allowing a deduction of 30% will be taxable as Income from House
property. Further, section 25AA also provides for taxation of unrealised rent subsequently charged to income-tax. Even though the nature of income being charged to tax in both cases is similar, the deduction of 30% is not allowed in case of unrealised rent subsequently received. It may be noted that had the rent been realised earlier in normal course deduction of 30% would have been allowed under section 24(a). This discrimination seems to be inadvertent omission and thus needs rectification.

Section 25AA be suitably amended to provide that unrealised rent subsequently realised shall after deducting a sum equal to thirty percent of such amount shall be deemed to be income chargeable under the head “Income from House property”

b) Huge lease rent is generally paid if the land is taken on lease and the building is constructed by the assessee. However, section 24 of the Income-tax Act, 1961 does not provide any deduction from income from house property for an amount so paid by the assessee.

Considering the cost involved in payment of lease rents, it suggested that ground rent shall be allowed as separate deduction while computing income under the head “Income from House property”.

Source- Pre-Budget Memorandum 2014 on direct taxes by Institute of Chartered Accountants of India.