The list of deduction u/s 24 is exhaustive i.e., no deduction can be claimed in respect of expenditures which are not specified under this section e.g., no deduction is allowed for repairs, collection charges, insurance, ground rent, land revenue, etc.
1. Standard deduction u/s 24(a)
30% of the net annual value is allowed as standard deduction in respect of all expenditures (other than interest on borrowed capital) irrespective of the actual expenditure incurred.
Note: Where NAV is negative or zero, standard deduction u/s 24(a) is not available.
2. Interest on loan or borrowed capital u/s 24(b)
Interest payable on amount borrowed for the purpose of purchase, construction, renovation, repairing, extension, renewal or reconstruction of house property can be claimed as deduction on accrual basis.
For the purpose of calculation, interest on loan is divided into two parts:
(a) Standard Deduction [Sec. 24(a)]
Pre-construction period means the period starting from the day of commencement of construction or the day of borrowing whichever is later and ending on March 31 immediately prior to the year of completion of construction.
Example: X has taken a loan on 1/4/1998 for construction of house property. Construction started on 1/6/2000 and completed on 17/8/2011. In such case, pre construction period will be a period starting from 1/6/2000 and ending on 31/3/2011.
(b) Interest on Loan [Sec. 24(b)]
Post-construction period means the period starting from the beginning of the year in which construction is completed and continues until the loan is repaid.
Treatment: It can be fully claimed as deduction in the respective year(s).
In the given example, post-construction period will start from 01/04/2011.
In nutshell, tax treatment is as under:
1. Pre – Construction Period
Starts From – The day of commencement of construction or the day of borrowing, whichever is later Ends on – March 31 immediately prior to the year of completion of construction Tax treatment – The interest incurred during aforesaid period shall be accumulated and allowed as deduction in 5 equal instalments from the year of completion of construction.
2. Post Construction Period
Starts From – The first day of the previous year in which construction is completed Ends on – When loan is fully paid Tax treatment – The interest expenses for the year (on accrual basis) shall be allowed as deduction in the respective year.
a) Interest on borrowed capital is allowed on accrual basis even if the books of account are kept on cash basis.
b) Interest paid on fresh loan, which is taken to repay the original loan (being taken for above-mentioned purpose) shall be allowed as deduction.
c) Interest on new loan, taken for paying outstanding interest on old loan, is not deductible
d) Amount paid as brokerage or commission, for arrangement of the loan, is not deductible.
e) Interest on loan taken for payment of municipal tax, etc. is not allowed as deduction.
Amount not deductible from Income from house property [Sec. 25]
Any interest chargeable under this Act which is payable outside India, is not allowed as deduction if:
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