Section 24 of Income Tax Act

Deductions from income from house property.

Section 24. Income chargeable under the head "Income from house property" shall be computed after making the following deductions, namely:—

 (a) a sum equal to thirty per cent of the annual value;

 (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed [within three years from the end of the financial year in which capital was borrowed], the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees.

Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:]

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation.—For the purposes of this proviso, the expression "new loan" means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.

Q Whether the Interest paid on interest levied by bank, because of non-payment of instalments of borrowed capital to bank  qualify for an admissible deduction u/ Section 24 ?

Answer No. In terms of section 24(1)(vi), compound interest, i.e., interest paid on interest levied by bank, because of non-payment of instalments of borrowed capital to bank, does not qualify for an admissible deduction  [2014] 41 taxmann.com 10 (Punjab & Haryana) HIGH COURT OF PUNJAB AND HARYANA Naman Kumar v. Commissioner of Income-tax, Patiala

Q if the vendor agrees to receive the consideration for sale in instalments after the purchase transaction is completed, whether any interest payable on such instalments will be an allowable deduction to the purchaser in the computation of income from house property ?

Answer yes, CIT v. Sunil Kumar Sharma [2002] 254 ITR 103/ 122 Taxman 159 (Punj. & Har.), the respondent-assessee constructed a house property on a commercial site purchased in an auction from the Notified Area Committee, for which he had to make instalment payments to the Committee with interest. He claimed deduction of interest paid on the instalment payments The High Court held that unpaid purchase price was to be treated as borrowed capital, and that interest paid thereon was allowable as a deduction, keeping in view the object behind allowing the deduction.

In the case of CIT v. R.P. Goenka & J.P. Goenka [1998] 233 ITR 123/ 99 Taxman 13 (Cal.), the assessee purchased a house property from a company for a consideration of Rs. 11,50,000. The agreement between the assessee and the vendor was that the assessee would make an initial payment of Rs. 3.50 lakhs and pay the balance of Rs. 8 lakhs in instalments of Rs. 1 lakh each together with interest at 8 per cent per annum. Even for making the initial payment, the assessee borrowed Rs. 3.50 lakhs from A, on which interest was payable. Subsequently, the assessee borrowed a further sum from A on payment of interest, and paid the unpaid purchase consideration and the interest due thereon. The Tribunal held that the quantum of interest which was deductible would be the interest paid to A on the first borrowal of Rs. 3.50 lakhs, and the interest paid to A on the second borrowal which is attributable to the payment of unpaid purchase consideration (principal only). In respect of that portion of the second borrowal which was utilised for payment of interest to the vendor under the aforesaid agreement, the Tribunal held that such interest was not allowable as deduction. The High Court agreed with the Tribunal’s conclusions and held that there was no infirmity in the view taken by the Tribunal, since ‘once the capital is borrowed for acquiring the house property, interest paid thereon should be deducted from the income of the property’

Q Whether the Income from Sub letting is covered under the Income from House Property and deduction of 30% can be availed ?

Answer  Income from subletting of the house property is taxable under the head ‘Income from other sources’ and not under this head as a person who sub-lets the property is not its owner but is only a tenant.

Q is it necessary that owner should actually receive the Income from House Property ?

Answer ;It is not necessary that the owner should actually be in receipt of income from such property. A person, other than the owner, may be in receipt of income, and still the owner will be chargeable to tax in respect of such house property - S. Kartar Singh v. CIT [1969] 73 ITR 438 (Delhi).

Q When the Assessee carries on Business or Profession in the House property can he calim the Income taxable under the Head House Property ?

Answer ; No. It is taxable under the head Profit from Business or Profession. Expenses like current repairs and municipaltaxes including depreciation are allowable deductions against his business profits.

Q If the Capital is borrowed from the person outside India for the house, can the Assessee claim the Interest deduction ?

 Answer Section 25 provides that interest payable outside India shall not be deducted while computing income from house property if tax in that respect has not been deducted and in respect of which there is no person in India who may be treated as an agent under section 163.

Q: if the unrealized rent is realized in the subsequent year when the Assessee is not the owner of the Property , will the income be taxed under Income from House Property ?

Answer , yes,  section 25AA, unrealised rent received subsequently shall be deemed to be income chargeable to tax under the head ‘Income from house property’ and, accordingly, charged to tax as income of that previous year in which such rent is realised, whether or not the assessee is the owner of that property in that previous year.