Annual value of a property U/s.22 of Income tax Act

Section 22 provides for taxation of ‘annual value’ of a property consisting of any buildings or lands appurtenant thereto. The term ‘buildings’ includes any building- office building, godown, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. as long as they are not used for business or profession by owner. Land appurtenant includes land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.

Some critical issues on Section 22

Tax imposed under section 22 is a tax on `annual value’ of house property. The purpose for which the building is used by the tenant is also immaterial.
Income arising out of the building or a part of the building is covered under this section. Existence of a building is an essential prerequisite.
Any income, arising out of vacant land, is not covered under this section even though it may be received as rent, ground rent or lease rent. Such income would be assessable as income from other sources. Even rent, arising out of open spaces, or quarry rent, is taxed as income from other sources.
It does not make any difference, if the property is owned by a limited company, a firm, a HUF or individual.

When the property is used by the owner for his business or profession, the ‘annual value’ of property is not charged in the hands of the owner.
When a firm carries on business or profession in a building owned by a partner, no income from such property is added to the income of the partner, unless the firm pays the partner any rent for the same.

For the purpose of section 22, the owner has to be a legal owner. However, the Supreme Court in the case of CIT v/s. Podar Cement (P) Ltd. etc. 226 ITR 625 (SC). held that ‘owner’ is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of Section 22 is not warranted.

Annual value of property is assessed to tax under section 22 in the hands of owner even if he is not in receipt of income or even if income is received by some other person.

If the assessee is not the owner of the building, but is a lessee and he sublets the property, he would be taxed under the head ‘Income from other sources’.
Co-ownership: In case where property is owned jointly by two or more persons, and where shares of such joint owners are definite and ascertainable, the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property the rent/ annual value will be taken in proportion to his share in the property. In such an eventuality, the relief admissible under section 23(2) shall also be separately allowable to each such person [Explanation to Section 26]. However, where the share is not definite, the income of the property shall be assessed as that of an Association of persons.(s 26)
Source : Taxguru


Worried About Tax on Rental Income? Here Are the Solutions !

Rental Income or income from house property is one of the most common sources of income in India after salary. There are many households which earn their livelihood from rental income only. For those who’re interested in investing money in the property as well as earning interest on the same, they should also be aware about tax planning so that they can reduce their tax liability to the minimum.

Tax Planning vs Tax Evasion
One also needs to understand the difference between tax planning and tax evasion. Evading tax is illegal, and certainly not recommended in any case. However, tax planning is a legal term, and is within the ambit of law.

Deemed Rental Income
Many are not aware about the concept of ‘deemed rental income’. However, this is a reality. If you own property other than a house, then the second and subsequent properties are considered as deemed let out even if you are not earning any amount on it. Further, you have to pay the tax based on fair market value of the rental income on that property.

Calculating Rental Income
Calculation of income from house property follows a simple formula: There are a couple of additional concepts one should be aware of in this context.
Municipal Taxes: Municipal Taxes are also known as house tax. Hence, if you have paid any amount, then you can claim it as deduction.

Standard deduction: As an owner of the property, you incur many expenses on the property including repair, etc. However, these expenses cannot be claimed as an expenditure against the rental income. In order to overcome this hardship, one can avail the option of 30 percent standard deduction given to the assessee.

Benefits of Housing Loan
If you buy a house via a housing loan, you can cut down the cost by claiming it against your income, and ultimately reducing the tax liability.
Principle amount as deduction: As per section 80C, the principle amount can be claimed as a deduction, subject to the total limit of Rs 1,50,000.
Interest Payment: The interest payment can also be claimed as expenditure while calculating the income from house property. However, two possible cases need to be understood:

1) If property is self occupied: If the property is self-occupied, then interest deduction shall be limited to Rs 2,00,000.
2) If property is let out or deemed let out: If the property is let out or deemed let out, then in that case, there is no upper limit of Rs 2,00,000.
Additional benefit granted in Budget 2016 – Section 80EE
The additional benefit has been granted in Budget 2016, in order to fulfil the dream of every individual to buy a house. An additional deduction of interest of Rs 50,000 can also be incurred subject to certain conditions:
– House Value should be less than Rs 50 Lakh
– Loan sanctioned should be between 1 April 2016 to 31 March 2017.
– The total value of loan should not exceed Rs 35 Lakh.
This benefit of Rs 50,000 is over and above the interest deduction of Rs 2 lakh.

First Residential Property and Taxation
If you are planning to purchase your first house, and you are paying interest on housing loan. Then you can claim interest of Rs 2,00,000 as a loss from house property which could be adjusted against your salary income subject to maximum of Rs 2,00,000 (as per the Finance Act, 2017). This is a sheer advantage of owning house property.

Second Residential Property and Taxation
If you already own a house and plan to purchase another one, then here are the factors that will determine your tax:
– The second home/house shall be treated as deemed let out even if the house remains empty. Hence, you should not forget to include the income from this house in your ITR.
– The limit of Rs 2,00,000 on interest does not apply, and hence, you can claim the deduction for amount more than Rs 2,00,000.
– On the rental income, you can claim the standard deduction.
– You can also claim expenses like stamp duty in your ITR.

Bad Debt
If you have any unrealised rent, then don’t worry, the income tax department has good news for you. Due to any reason, if you have not received the rent, then it shall be deducted from the total rent received.
Further, it shall be taxable in the year in which it is actually received.

Benefit of Co-Ownership
If two people have purchased a house, then it could be really beneficial, as far as the taxes are concerned. You can understand this by way of example:
Suppose Mr Ram is planning to buy a house and rents out the property for a monthly rent of Rs 1,00,000. Calculate the income from house property stating whether he should buy independently or opt for co-ownership.
Solution: If a house is co-owned and their share is ascertainable, then the income shall be taxable for both the partners in accordance with the ratio of their ownership. Assuming they own 50:50, the calculation is as under:

You can see the difference, if property is co-owned, the tax liability comes down drastically from Rs 95,970 to Rs 24,720. The total benefit amounts to Rs 71,250.

Exemptions on Sale of Property
As per section 54 of the Income tax act, 1961, you can save your capital gain tax from the house property income if you invest the entire sum in a residential property. The exemption does not extend to the commercial properties, and hence, due caution should be taken before claiming the exemption.

Source : The Quint dt.8.4.2017

Cases where Income from house property is wholly exempted

1. Income from any farm house forming part of agricultural income;
2. Annual value of any one palace in the occupation of an ex-ruler; Section 10(19A)
3. Property Income of a local authority; Section 10(20)
4. Property Income of an authority, constituted for the purpose of dealing with and satisfying the need for housing accommodation or for the purposes of planning development or improvement of cities, towns and villages or for both. (The Finance Act, 2002, w.e.f. 1.4.2003 shall delete this provision.);
5. Property income of any registered trade union; Section 10(24)
6. Property income of a member of a Scheduled Tribe;
7. Property income of a statutory corporation or an institution or association financed by the Government for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;
8. Property income of a corporation, established by the Central Govt. or any State Govt. for promoting the interests of members of a minority group;
9. Property income of a cooperative society, formed for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;
10. Property Income, derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities by an authority constituted under any law for the marketing of commodities;
11. Property income of an institution for the development of Khadi and village Industries;’
12. Self-occupied house property of an assessee, which has not been rented throughout the previous year;
13. Income from house property held for any charitable purposes;
14. Property Income of any political party. Section 13A

How to Compute & Save tax on Income from House Property

House property includes the building itself and any land attached to the building. Property refers to any building (house, office building, warehouse, factory, hall, shop, auditorium, etc.) and/or any land attached to the building (compound, garage, garden, car parking space, playground, gymkhana, etc.). There are many intricacies and types of house property which is calculated in different ways. Taxability may not necessarily be on actual rent or income received. If the property is not let out, the tax will be charged on the potential income the property is capable of yielding.

Before computing income from house property, it is important to understand the following definitions.

• Annual Value: This is the capacity of a property to earn income is its annual value.

• Municipal Value: This is the value of your property as evaluated by municipal authorities on which they charge municipal tax. Municipal authorities have a host of factors that they consider before assigning a municipal value.

• Fair Rental Value: The rent which a similar property with similar features in the same (or similar) area would fetch is the fair rental value.

• Standard Rent: Under the Rent Control Act, a standard rent is fixed and owners cannot receive rent higher than that specified in the Rent Control Act. This Act ensures that owners are paid fair rent, tenants are not exploited and are protected from eviction.

• Actual Rent received/receivable: This is the actual amount received by the owner from the tenant as rent, depending on who pays the water, electricity and other utility bills.

• Gross Annual Value (GAV): This is the highest among:

• Rent received or receivable

• Fair Market Value

• Municipal Valuation
If the Rent Control Act is applicable, the GAV is highest among:

• Standard Rent

• Rent Received

• Net Annual Value (NAV): NAV = GAV – Municipal Taxes Paid

• Deductions: To arrive at the actual taxable income from house property, two deductions are allowed, under Section 24 of the Income Tax Act :

• Statutory Deduction: 30% of the NAV is allowed as a deduction towards repairs, rent collection, etc. irrespective of the actual expenditure incurred. This deduction is not allowed if the Annual Value is nil.

• Interest on borrowed capital: is allowed as a deduction on accrual basis if the money was borrowed to buy/construct the house. Deduction is allowed on whichever is lesser between Rs.1,50,000 or the actual interest amount (in case the construction was completed within 3 years of taking the loan, on or after 1-April-1999.) In other cases, it’s between Rs.30,000, and the actual interest, whichever is less.

• Annual Value: Annual Value = NAV – Deductions.

• Owner/deemed owner: Income from house property is taxable to the owner of the property. The owner is the person who is entitled to receive income from property. This means that income is chargeable to the person who receives financial benefit from the property, even if the property is not registered to him, i.e. deemed owner. A deemed owner is an owner by implication and not necessarily documented registration

How to Save Tax on Income from House Property?
Careful planning can enable you to save a sizeable amount from taxation. Some of the things you can do to save tax are as follows:

• Joint Home Loan – If you jointly own a property with someone and also apply for a joint home loan with your partner, you will both be eligible for tax deductions on interest up to Rs. 1,50,000 each.

• Planning a second home? If you already have one self-occupied property registered to your name and wish to avoid paying taxes on a second home, register the second property on your spouse/relatives name to avoid excess taxation.

• Joint ownership – Taxation on income from house property can be divided between co-owners, and hence lessen the load.

• Ownership of more than one property – If you own multiple properties, only one of these can be registered as your residence and fall under self-occupied property (SOP). It is important to evaluate the tax liability on all your properties and choose the one with the highest tax liability to call home, and let out the remaining. You can also change the SOP every year.

• Empty houses – that you own will still be taxed based on the fair rental value, so it’s advisable to let any and all empty properties out, enabling income and no loss because of taxation.

Tax Benefits of Having a Second Home

Let us Understand tax implications of second home

Some individuals do own second home or plan to own second home. Let us say some individuals are lucky or have worked hard enough to own a second home. Second home is purchased for the following purpose

  • For investment
  • For regular income in form of rent
  • For diversification in the overall investment portfolio
  • For holiday home, etc

Second home is an excellent asset to own. At the same time it is important to understand the tax advantages or disadvantages of owning a second home. The tax implications are very different based on whether the second home is self-occupied or rented out.

Self-Occupied Second Home

For the situation where an individual uses first and second homes for self, then any one of the home based on individual’s choice is considered as self-occupied. The other home is deemed or considered to be rented out, for taxation purpose. For this situation the following tax aspects are applicable.

  1. Notional Rental Income– A notional rental income, is considered as the income from the deemed rented out home. This notional income is added to total income of the individual for income tax computation
  1. Interest Cost Benefit– The interest paid per year, without any limit, on the housing loan for the deemed rented out home is allowed as deduction from the total income. This is different from the self-occupied home, where interest deduction is only limited to Rs 2 lakhs per year

For the situation where the second home is rented out, the following tax aspects are applicable

  1. Rental Income– The rent received is considered as income and added to total taxable income of an individual
  1. Property Taxes Benefit– The property or municipal taxes paid in a financial year are allowed as deduction from the rental income
  2. Repair & Maintenance Cost Benefit – 30% of the annual rental income is allowed as deduction from the rental income. As 30% of the annual rental income is considered as the annual home repair & maintenance cost. 30% of the annual rental income is fixed irrespective of the actual cost of home repair & maintenance cost
  1. Interest Cost Benefit – The interest paid per year, without any limit, on the housing loan for the rented out home is allowed as deduction from the total income. This is different from the self-occupied home, where interest deduction is only limited to Rs 2 lakhs per year

It is a myth or misunderstanding that interest on second home does not provide tax benefit. Rather it is opposite of that – interest on second home provide tax benefit on the complete interest amount, without restriction of Rs 2 lakhs limit per year.

If Assessee owns more than one house property & is kept for own use,

  • one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
  • Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above.

In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit. However, for the second house property, no deduction is available for repayment towards the principal portion of housing loan under section 80C.

 In case of second house if the house is yet to be constructed, 20% of the total interest paid during the pre-construction period is also allowed as tax deduction. There is a limit however here which means that this benefit on pre construction house is available for five years.

Suppose you are staying in Mumbai and you buy your second house at Patna. It is obvious that the second house will not be used by you and there is also a likelihood that the house remains vacant and is not put on rent. In a different scenario, let us imagine that you have given the house to your parents for staying and you are not getting any rent. In order to understand what is the tax benefit of the second house, which is a let out house let us imagine the scenario given below.  Suppose you earn Rs.1.5 lakhs on second house as rental after adjusting municipal taxes. So the annual value of property is taken as Rs.1.5lakhs. A standard deduction at the rate of 30% is allowed on let out property. So this works out to be Rs.45000 and you are paying Rs.1.4 lakhs as interest on the loan taken for second house. So the total income from house property will be considered as ( a-(b+c)) as given in the example below.

Second house is let out property a) Rental Income ( Annual Value) Rs. 150000 per annum b) Standard Deduction @30% Rs. 45000 c) Interest paid on home loan Rs. 140000 d)  Income from House property -35000 The negative income from second house is shown as loss from house property and you can reduce this amount from your taxable income. In case an employer does not allow you to adjust loss, you can claim tax benefit while filing tax returns.

Is it not always beneficial to buy second house from taxation perspective, because, There are two scenarios in which you do not get real benefits. Scenario one is when you have paid your home loan and hence there is no interest that is paid on second home. Two, when the interest paid and standard deduction is less than annual value you do not get any tax benefit on second house.

Tax Benefits on Home Loan for Joint Owners

Co-owning a property can be beneficial for married couples the transfer of rights becomes easy, because if one of the partner dies, the surviving spouse automatically becomes the sole owner of the house. And if the couple has taken a home loan jointly, each person can avail of the tax benefits

Joint ownership brings separate problems such as Mine vs Yours. Very few partners have the confidence that the other half will handle the money the way they want. Those who enter a joint ownership should be aware that all partners are liable for all the dealings in an account as a single or joint entity. So joint ownership of financial product should be done only with someone you can trust. Don’t ignore tax concerns and possible legal hassles before opting for these. For example If husband and wife have opened a Fixed Deposit jointly then who pay tax on the interest earned or for joint ownership of house who takes the tax advantage on principal and interest?  Clarity of source of income needed for tax purposes. Or what happens when they get divorced who get what, how much proportion?

There are both benefits and drawbacks associated with joint ownership.The following tax benefits on a joint home loan can be availed by all the joint owners. Subject to certain conditions, which are as under.

Tax benefits on a joint home loan are available to all the joint owners. It’s pertinent to note that ‘ownership’ in the property is a pre-requisite to availing any tax benefits against the property. You may have taken the loan jointly, but unless you are an owner in the property – you may not be entitled to the tax benefits. There have been situations where the property is owned by a parent and the parent & child together take up a loan which is paid off only by the child. In such a case the child, who is not a co-owner is devoid of the tax benefits on the home loan. Therefore to be able to claim the tax benefits on the property you must be a owner or co-owner in the property . In case of joint home loan all the co-borrowers of the loan can avail the deduction towards the repayment of principal amount along with interest on loan. This tax benefits will be proportionate to their share in the home loan.

For a self occupied property – Each co-owner, who is also a co-applicant in the loan, can claim a maximum deduction Rs 2,00,000 for interest on the home loan in their Income Tax Return. The total interest paid on the loan is allocated to the owners in the ratio of their ownership. Each owner/borrower can claim interest benefit upto a maximum of Rs 2,00,000. The total interest claimed by the owners/borrowers cannot exceed the total interest paid for the loan.

For a rented property – For a property which is given on rent the entire interest can be claimed as a deduction. In the above example, (the only difference in case of rented property is that there is no cap in the max interest that can be claimed by each)

Section 80C of the income tax act 1961 allows an assessee to avail the benefit of deduction towards the repayment of principal amount. Each co-owner, can claim a deduction of maximum Rs 1,50,000 towards repayment of principal under section 80C.  This is within the overall limit of Rs 1,50,000 of Section 80C.

You can avail the deduction towards interest on loan paid under section 24 of the act. As a family you will be able to take a larger tax benefit against the interest paid on the home loan when the property is jointly owned and your interest outgo is more than Rs 2,00,000 per annum.

It’s important to note that the tax benefit of both the deduction on home loan interest and principal repayment under section 80C can only be claimed once the construction of the property is complete. These benefits are not available for a under construction property.

  1. There may be a situation where you are paying the entire loan installment and the co-borrower is not contributing any payments. In such a case, you may claim the entire interest as a deduction in your Income Tax Return.
  2. Stamp duty and registration charges of a property can also be claimed by the joint owners.

As a measure of tax planning, Since all the co-owners are allowed to have the tax benefit it is advisable to split their share of the loan accordingly so that person having maximum tax slab will be allocated majority amount of the loan which makes it possible to avail optimum tax benefit.

Points to be noted about tax benefits on home loan

Home loan borrowers are entitled to tax benefits under Section 80C and Section 24 of the Income Tax Act. These can be claimed by the property’s owner.

In the case of co-owners, all are entitled to tax benefits provided they are co-borrowers for the home loan too. The limit applies to each co-owner.

A co-owner, who is not a co-borrower, is not entitled to tax benefits. Similarly, a co-borrower, who is not a co-owner, cannot claim benefits.

Housing companies usually require all co-owners to be joint borrowers to a home loan. Loan providers specify who can be a joint borrower for a home loan.

The tax benefit is shared by each joint owner in proportion to his share in the home loan. It’s important to establish the share for each co-borrower to claim tax benefits.

The certificate issued by the housing loan company, showing the split between principal and interest for the EMIs paid, is required for claiming tax benefits.

Frequently Asked Questions (FAQ):

1.How the Co-owners can claim interest paid on housing loans ?

Let’s understand Ramesh and his father bought a house on loan and paid Rs 4,50,000 in interest. They have a 50:50 share in the property. Ramesh can claim Rs 2,00,000 in his tax return, his father can also claim Rs 2,00,000.

  1. What are Income tax benefits of taking  and repaying a housing loan under EMI Plan?

You will be eligible to claim both the interest and principal components of your repayment during the year. Interest can be claimed as a deduction under Section 24. You can claim up to Rs. 200,000 (Rs. 150000/- up to A.Y. 2014-15) or the actual interest repaid whichever is lower. (You can claim this interest only when you are in possession of the house) . Principal can be claimed up to the maximum of Rs. 150,000  (Rs. 100000/- up to A.Y. 2014-15) under Section 80C. This is subject to the maximum level of Rs 150,000 (Rs. 100000/- up to A.Y. 2014-15) across all 80C investments.

You will need to show the statement provided by the lender showing the repayment for the year as well as the interest & principal components of the same.

  1. If I buy a house jointly with my wife and take a joint home loan, Can we both claim income tax deduction?

if your wife is working and has a separate source of income, both of you can claim separate deductions in your income tax returns.The repayment of principal amount of the loan can be claimed as a deduction under section 80C up to a maximum amount of Rs. 1.50 (Rs. 1 Lakh  up to A.Y. 2014-15)  lakh individually by each co-owner. In cases where the house is owned by more than one person and is also self-occupied by each co-owner, each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs. 2  lakh (Rs. 1.50 Lakh  up to A.Y. 2014-15). If the house is given on rent, there is no restriction on this amount. Both co-owners can claim deductions in the ratio of ownership.

  1. My husband and I have jointly taken a home loan. He pays 75 percent of the EMI. What will be our individual tax benefits?

As you have taken a joint home loan, both of you are eligible for tax exemption for your share of the EMI paid. For claiming income tax deduction, the EMI amount is divided into the principal and interest components. The repayment of the principal amount of loan is claimed as a deduction under section 80C of the Income Tax Act up to a maximum amount of Rs. 1.50 (Rs. 1 Lakh  up to A.Y. 2014-15) lakh individually by each co-owner. The repayment of the interest portion of the EMI is also allowed as a deduction under section 24 of the Act, which is given under the head “income from house property”. In case you are living in the house for which home loan is taken, both of you shall be entitled to deduction in the ratio (3:1) on account of interest on borrowed money up to a maximum of Rs. 2 lakh individually (Rs. 1.50 Lakh  up to A.Y. 2014-15). If the house is given on rent, there is no restriction on this amount and both co-owners can claim deduction in the ratio of ownership- 3:1 in your case.

  1. Plan to buy a house by raising loans from friends and relatives. Will I be eligible for tax benefit from all sources?

Interest payment to friends and relatives can be claimed u/s 24 but only against a certificate received from them. In the absence of the certificate, you would not be eligible for the deduction. The recipient of interest income who issues the certificate is liable to pay tax on the interest income that he receives. As far as the principal payments are concerned, they would not qualify for tax benefit as loans only from notified institutions and banks are eligible for such deductions.

  1. What are the tax benefits that I can avail of for repaying a home loan ?

You will be eligible to claim both the interest and principal components of your repayment during the year. Interest can be claimed as a deduction under Section 24. You can claim up to Rs. 200,000  (Rs. 1.50 Lakh  up to A.Y. 2014-15) or the actual interest repaid whichever is lower. (You can claim this interest only when you are in possession of the house). Principal can be claimed up to the maximum of Rs. 150,000  (Rs. 1 Lakh  up to A.Y. 2014-15) under Section 80C. This is subject to the maximum level of Rs 150,000 (Rs. 1 Lakh  up to A.Y. 2014-15) across all 80C investments. You will need to show the statement provided by the lender showing the repayment for the year as well as the interest & principal components of the same.

      7 .  Can I take advantage of tax benefits from a home loan as well as claim House Rent Allowance (HRA) ?

If you took a home loan and are still living in a rented place, you will be entitled to: (1) Tax benefit on principal repayment under Section 80C (2) Tax benefit on interest payment under Section 24 (3) HRA benefit. you can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops. If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above. However, in this case, the rent you receive would be considered as your taxable income.

  1. I have a home loan in which I am a co-applicant. However, the total EMI amount is paid by me. What is the total income tax exemption that I can avail of ?

Yes, you can claim income tax exemption if you are a co applicant in a housing loan as long as you are also the owner or co owner of the property in question. If you are only person repaying the loan, you can claim the entire tax benefit for yourself (provided you are an owner or co-owner). You should enter into a simple agreement with the other borrowers stating that you will be repaying the entire loan. If you are paying part of the EMI, you will get tax benefits in the proportion to your share in the loan.

  1. I have two housing loans on two different properties. Can I get tax rebate under sec 80 C of both the loans?

Yes, you can get the 80C benefit on both loans. However, the total amount that you will be entitled to will be a total of Rs 150,000 (Rs. 1 Lakh  up to A.Y. 2014-15) across both the homes. The interest paid on a home loan is not directly deductible from your salary income for either of your flat loans. Income from house property will be calculated for each flat you own. If  either of theses calculations shows a loss, this loss can be set off against your income from other heads. As for Section 24 deduction, on yourself occupied house you can take advantage of interest payments up to Rs.2,00,000  (Rs. 1.50  Lakh  up to A.Y. 2014-15).  For the other property, you can claim actual interest repaid, there is no limit for the same.

  1. I live in one city in my own house. I took a housing loan to fund the purchase of an under-construction flat in another city. It is expected to be completed in FY 15. I haven’t claimed any tax benefit so far. What happens to the loan installments I have paid so far? Can they also be claimed for tax benefit?

According to the Income-tax Act, 1961, where the property has been acquired or constructed with borrowed capital, the interest payable on such capital for the period prior to the year in which the property has been acquired shall be allowed as deduction in five equal installments beginning from the year in which the property is acquired. Thus, the interest included in the loan installment paid by you during the construction period shall be eligible for deduction from the year in which the flat is acquired/construction is completed. The principal amount of the loan repaid till date shall not be available as a deduction under section 80C till the time the construction of the flat gets completed. Once the flat is completed and the possession is handed over to you, you will be eligible to claim deduction for interest paid on the loan under section 24(b) and principal amount of loan under section 80C. The total amount of deduction available under section 80C shall be limited to Rs. 1.50 lakh (Rs. 1 Lakh  up to A.Y. 2014-15). Thus, as of now, you are not eligible for any tax benefit on such loan repayments.

Do section 24 and section 80 EE of Income tax act, are same? or can be claimed both?

This deduction will be over and above the deduction of Rs 150,000 allowed for self-occupied properties under section 24 of the Income-tax Act”.

However when the Act was formulated the section 80EE(4) states “Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year”.

Let us look briefly at Section 24(b) and what does it say-
Tax payer shall be allowed deduction up to Rs 1,50,000 for interest on borrowed capital when these 3 conditions are fulfilled-

Capital is borrowed for acquiring or constructing a property after 01.04.1999

  • Acquisition or Construction is completed within 3 years from the end of the financial year in which capital is borrowed
  • The person extending the loan certifies that interest is payable towardsloan for acquisition or construction

The pre- construction interest can also be allowed as deduction in five equal installments beginning the year in which the property is acquired or constructed (however this is subject to the overall limit of Rs 1,50,000).

The Government intended to give this benefit in Section 80EE to the lower income group who are purchasing their first house, if you are able to satisfy conditions of both Section 24 and Section 80EE, both the benefits shall apply to you. First exhaust your limit under section 24 and then go on to claim the additional benefit under section 80EE.