Deductions

 Chapter VI A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations etc. Such deductions allow an assessee to considerably reduce the tax payable.

The Chapter VI A of Income Tax Act contains the following sections:

80C: Deduction in respect of life insurance premium, deferred annuity, contributions to provident fund (PF), subscription to certain equity shares or debentures, etc. The deduction limit is Rs 1.5 lakh together with section 80CCC and section 80CCD(1).

80CCC: Deduction in respect of contribution to certain pension funds. The deduction limit is Rs 1.5 lakh together with section 80C and section 80CCD(1).

80CCD(1): Deduction in respect of contribution to pension scheme of Central Government – in the case of an employee, 10 per cent of salary (Basic+DA) and in any other case, 20 per cent of his/her gross total income in a FY will be tax free. Overall limit is Rs 1.5 lakh together with 80C and 80CCC.

80CCD(1B): Deduction up to Rs 50,000 in respect of contribution to pension scheme of Central Government (NPS).

80CCD(2): Deduction in respect of contribution to pension scheme of Central Government by employer. Tax benefit is given on 14 per cent contribution by the employer, where such contribution is made by the Central Government and where contribution is made by any other employer, tax benefit is given on 10 per cent.

80D: Deduction in respect of Health Insurance premium. Premium paid up to Rs 25,000 is eligible for deduction for individuals, other than senior citizens. For senior citizens, the limit is Rs 50,000 and overall limit u/s 80D is Rs 1 lakh.

80DD: Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability. The maximum deduction limit under this section is Rs 75,000.

80DDB: Deduction in respect of expenditure up to Rs 40,000 on medical treatment of specified disease from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist, as may be prescribed.

80E: Deduction in respect of interest on loan taken for higher education without any upper limit.

80EE: Deduction in respect of interest up to Rs 50,000 on loan taken for residential house property.

80EEA: Deduction in respect of interest up to Rs 1.5 lakh on loan taken for certain house property (on affordable housing).

80EEB: Deduction in respect of interest up to Rs 1.5 lakh on loan taken for purchase of electric vehicle.

80G: Donations to certain funds, charitable institutions, etc. Depending on the nature of the donee, the limit varies from 100 per cent of total donation, 50 per cent of total donation or 50 per cent of donation with a cap of 10 per cent of gross income.

80GG: Deductions in respect of rent paid by non-salaried individuals who don’t get HRA benefits. Deduction limit is Rs 5,000 per month or 25 per cent of total income in a year, whichever is less.

80GGA: Full deductions in respect of certain donations for scientific research or rural development.

80GGC: Full deductions in respect of donations to Political Party, provided such donations are non-cash donations.

80TTA: Deductions in respect of interest on savings bank accounts up to Rs 10,000 in case of assessees other than Resident senior citizens.

80TTB: Deductions in respect of interest on deposits up to Rs 50,000 in case of Resident senior citizens.

80U: Deduction in case of a person with disability. Depending on type and extent of disability maximum deduction allowed under this section is Rs 1.25 lakh.

Deductions from the Gross Total Income of Individuals and Hindu Undivided Family

 Deductions from the Gross Total Income of Individuals and Hindu Undivided Family

Sections 80C to 80U of the Income Tax Act specifies the deductions to be made from the gross total income of an assesses. Gross total Income means the total income, under all the five heads of Income i.e.

Salary Income

Income from House Property

Profit and gain of Business or Profession Income

Capital Gains and

Income from Other Sources.

The gross total income is to be arrived at before allowing any deduction under Chapter VI A and after setting of unabsorbed losses, depreciations, etc of the earlier years. While deductions u/s 80C to 80GGC are in respect of certain payments made by the assesseee, while the deductions u/s 80IA to 80RRB & 80TTA are in respect of certain incomes. 

It may be noted that the aggregate amount of the deductions under chapter VI-A should not, in any case exceed the gross total income.

DEDUCTIONS IN RESPECT OF CERTAIN PAYMENTS:   

Section 80C

 Sections 80C(1) provides that the assesses being an individual or a HUF, will be allowed a deduction from gross total income of an amount not exceeding RS.1,50,000, in respected of amount paid or deposited in the previous year.

Section 80C(2) provides that following sum paid or deposited by an individual or HUF, at any time during the previous year, qualifies for deductions u/s80C(1)

1. Life Insurance Premium Paid:

(a) Life Insurance Premium paid by an individual on his/her life or on life of his /her spouse or on life of any child (including adult child and a married daughter. Vide circular no 574 dated 22.08.1990 185ITR (St.) 31) of such individual; and

(b) by a Hindu undivided Family, on life of any member of the family

Please remember that amount of any premium on an insurance policy issued on or before 31.03.2012, eligible for deduction is limited to 20% 0f the actual capital sum assured, i.e. premium paid in excess of 20% will not qualify for the deduction.

Likewise policy issued on or after 1st April 2012 eligible amount of deduction will be 10% of the capital sum assured.

Illustration: Mr. A has taken an insurance policy of Rs. 10,00,000 10 years and paid premium of Rs. 1,20,000 every year will get deduction of Rs. 1,00,000 only being 10% of the sum assured.

2. Payment for deferred annuity.

Payment made by and individual, on his her life or on life of his/her spouse or life of any child including adult children and a married daughter, of such individual, under contract for a deferred annuity.

3. Contribution made by an individual to any provident fund to which the Provident Fund Act, 1925 applies,

4. Contribution to Public Provident Fund Scheme,1968 in an account standing in the name of individual, the wife or husband and any child of such individual.

5. Contribution made by an employee to a recognized provident fund,

6. Contribution by an employee to an approved superannuation fund.

7. Subscription to any such security of Central Government or any such deposit scheme as may be notified.

8. Subscription to any such saving certificate of the Government Saving Certificate Act 1959 as may be notified.

9. Contribution made, in the name of any person mentioned below, for participation in the Unit-Linked Insurance Plan 1971

(a) in the case of an individual, the wife or husband and any child of such individual

(b)  in the case of an HUF, any member there of

10. Contribution made in the name of any person mentioned below for participation in the   Unit Linked Insurance Plan of the L.I.C. Mutual Fund

11. Payment made to effect or to keep in force a notified deferred annuity plan of  LIC (like New Jeevan Dhara, New Jeevan Dhara 1, New Jeevan Akshay, New Jeevan  Akshay – I, New Jeevan Akshay II, III plan or

Any other insurer i.e. Annuity Plan of ICICI Prudential Life insurance Co,  Plan of Tata AIG Ltd., and approved Tata AIG Retire Annuity Plan,

12. Subscription to any units of Mutual Fund,

13. Contribution by an individual to notified Pension Fund set up by any mutual  fund, Reliance Retirement Fund, HDFC Retirement Saving Fund,

14. Subscription to notified Deposit scheme of the National Housing Bank i.e. Home loan account scheme, a contribution to notified pension fund set up by the National Housing Bank,

15. Any sum paid by an individual as a Tuition Fees ( excluding any payment toward any development fees, donation or payment of similar nature of any two children

16. Payment for the purpose of purchase or construction of residential house property This will include any installment or part payment of the amount due under any self financing or other scheme of any development authority / housing board/ other similar authority or to any assesses from

a. Central/ State Government or

b. Any bank including a co operative bank

c. Life Insurance Corporation of India,

d. National Housing Bank

e. Any public limited company or co operative society engaged in the business of financing the construction of houses

f. The assessee’s employer

17. Subscription to equity shares or debentures forming part of any eligible issue  of capital approved by the board on an application made by such public company

18. Subscription to any units of any mutual fund referred to in Section 10(23D) and approved by the board

19. Any sum deposited in accordance with notified scheme of term deposit for a   fixed period of not less then 5 years with a schedule bank

20. Deposit in an account under the Senior Citizens Savings Scheme Rules 2004

21. Deposit as 5 year time deposit in an account under the Post Office Time Deposit Rules 1981.

DEDUCTION IN RESPECT OF CONTRIBUTION TO CERTAIN PENSION FUNDS

Section 80CCC

Under this section deduction is available to only individual. The assesses has in the previous year paid or deposited any amount out of his income chargeable tax, to effect or keep in force contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension.Any amount standing to the credit of the assesses in a fund is received by him on account of the surrender of the plan or in part or as pension received from plan shall be deemed to be the income of assesses

However commuted amount received as pension on maturity is exempt.

Deduction permissible Rs. 1,50,000

DEDUCTION IN RESPECT OF CONTRIBUTION TO PENSION SCHEME OF CENTRAL GOVERNMENT

Section 80CCD

Any person being an individual, employed by the Central Government or any other employee or any other individual deposited any amount in his account under a pension scheme will get deduction of Rs. 50,000 over and above of Rs. 1,50,000 aggregate amount of Section 80C, 80CCC & 80CCD(1)

DEDUCTION IN RESPECT OF HEALTH INSURANCE PREMIUM

Section 80D

Any person being individual or a Hindu Undivided Family have paid on account of preventive health check-up other than cash, in the previous year out of his income chargeable to tax, for health check-up of assesses, his family ( spouse or depended children) or parents, will get deduction from his gross total income as under.

For individual below the age of 60 years                                                   Rs. 25,000

For senior citizen above the age of 60 years                                             Rs. 30,000

From Assessment Year 2019-20   for senior citizen                                Rs. 50,000

In the case of an individual payment for preventive health check-up Rs.  5,000

Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability

Section 80DD

The assesses is either individual or HUF and is a resident in India incurred any expenditure for the medical treatment , training and rehabilitation of a dependant being a person with disability, paid or deposited any amount under a scheme framed in this behalf, deduction of Rs. 75,000 subject to the production of certificate issued by the medical authority.

Deduction in respect of medical treatment etc.

Section 80DDB

The assesses is either an individual or HUF and is a resident of India actually incurred any  expenditure during the previous year for the medical treatment of specified disease or ailment prescribed in rule 11DD(1), of the Income Tax Rules, for himself or a dependant or for the member of HUF will get deduction as under:

Below the age of 60 years                                                                          Rs. 40,000

Above the age of 60 years but below 80 years                                       Rs. 60,000

Above the age of 80 years very senior citizen                                        Rs. 80,000

Deduction in respect of interest on loan taken for higher education

Section 80E

Any individual has paid any amount in the previous year, out of his income chargeable to tax, by way of interest on loan ( not repayment of  loan) taken by him from any financial institutions, bank or any approved charitable institutions for the purpose of pursuing his higher education or also for the purpose of higher education of his relative, the deduction will be allowed 100% of the interest paid on loan taken without any monetary limit. Such deduction is allowable from gross total income of the initial assessment year and for 7 successive assessment years or until the interest on such loan is paid by him in full whichever is earlier.

Deduction in respect of interest on loan taken for residential house property

Section 80EE

Any individual, who has taken a loan from financial institution for the purpose of acquisition of residential property during financial year 2016-17, and the amount of loan sanction does not exceed Rs. 35,00,000 and the value of property does not exceed Rs.50,00,000 and individual does not own any residential house property on the date of sanction of the loan, the assesses will get deduction of maximum Rs. 50,000 for the assessment years 2017-18 to 2019-20.

Deduction in respect of donation to certain funds, charitable institutions etc,

Section 80 G

Deduction under this section is broadly classified in to four categories:

A. Donations on which 100% deduction is allowed without any qualifying limit

B. Donations on which 50% deduction is allowed without qualifying limit

C. Donations on which 100% deduction is allowed subject to qualifying limit

D. Donations on which 50% deduction is allowed subject to qualifying limit.

A. Donations on which 100% deduction is allowed without any qualifying limit

01. National Defense Fund set up by the Central Government

02. Prime Minister’s National Relief Fund

03. Prime Minister’s Armenia Earthquake Relief Fund

04. Africa (Public Contributions – India)Fund

05. National Children’s Fund

06. National Foundation for Communal Harmony

07. A University or any educational institution of national eminence as may be approved by the prescribed authority in this behalf

08. Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of earthquake in Gujarat

09. Jilla Saksarta Samiti

10. National or State Blood Transfusion Council

11. Any fund set up by State Government to provide medical relief to the poor

12. Any Army, Naval and Air Force Central Welfare Fund

13. National Illness Assistance Fund

14. Chief Minister’s Relief Fund

15. National Sports Fund

16. National Cultural Fund

17. Fund for Technology Development

18. National Trust for Welfare of different persons

19. Swachh Bharat Kosh set up by Central Government

20. Clean Ganga Fund set up by Central Government

21. National Fund for Control of Drug Abuse constituted under Narcotic Drugs Act

B. Donations on which 50% deduction is allowed without qualifying limit

01. Jawaharlal Nehru Memorial Fund

02. Prime Minister’s Drought Relief Fund

03. National Children’s Fund

04. Indira Gandhi Memorial Trust

05. Rajiv Gandhi Foundation

06. Donations for repairs/renovation of notified places of worship

07. World Vision India

C. Donations on which 100% deduction is allowed subject to qualifying limit

01. Fund to be utilized for the purpose of promoting family planning

02. Any sum paid by the assesses, being a Company to the Indian Olympic Association

03. Development of infrastructure for sports and games

04. The sponsorship of sports and games, in India

D. Donations on which 50% deduction is allowed subject to qualifying limit

01. Donations to govt./local authority for charitable purposes

02. Authority / corporation having income exempt under erstwhile section or Section 10(26BB)

03. Any other fund or any institution to which this section applies

04. Donations for the renovation or repair of any such temple, mosque, gurudwara, church or other place as is notified by Central Government

Calculation of Qualifying Limit:

Qualifying Limit u/s 80G is 10% of adjusted gross total income.

Calculation of Gross Total Income:

01. Gross Total Income

02. Less: Amount deductible u/s 80C to 80U but not u/s 80G

03. Less : Exempt Income

Deduction in respect of rent paid

Section 80GG

In computing the total income of an assesses, not being an assesses having any income falling with in clause (13A) of Section 10(i.e. getting HRA), there shall be deducted any expenditure  incurred by him which shall be lower of following:

• 5,000 per month
• 25% of adjusted total income
• Actual rent(-) 10% of adjusted total income

Provided that nothing in this section shall apply to an assesses in any case where any residential accommodation is

• Owned by the assesses or by his/her spouse or minor child or, where such assesses is a member of HUF, by such family at the place where he ordinarily resides, or performs duties of his office or employment or carries on his business or profession; or
• Owned by the assesses at any other place, being accommodation in the occupation of the assesses, the value of which is to be determined under clause(a) of subsection (2) or, as the case may be, clause (a) of subsection (4) of section 23.

Deduction in respect of certain donations for scientific research or rural development

Section 80GGA

Under this section deduction is allowed to any person whose Gross Total Income does not include income from  Profit and Gain from Business or Profession.

Deduction is allowed for contribution made for following:

• For scientific research or statistical research as allowed to a business person u/s 35
• For rural development for which business person will get deduction u/s 35CCA

No deduction shall be allowed if contribution is made for amount exceeding Rs.10,000 in cash

Deduction in respect of contributions given by companies to political parties

Section 80 GGB

During the year  any Indian Company has given donation to any political party registered under section 29A of the Representation of the People Act 1951 are eligible for deduction under this section. If the donation has been given in CASH, no deduction will be allowed.

Deduction in respect of contribution given by any person to political parties.

Section 80GGC

In computing total income of an assesses, being any person,( except local authority and every artificial juridical person, wholly or partly funded by the Government) there shall be deducted any amount of contribution made by him, in the previous year, to a political party or an electoral trust:

Provided that no deduction shall be allowed under this section in respect of sum contributed by way of cash.

“Political Party” means a political party registered/s 29A of the Representation of the People Act, 1951.

Deduction in respect of royalty income of authors of certain books other than text books.

Section 80QQB

Any individual, being resident of India and an author, received any income out of  exercise his profession, as royalty or copy right fees will get deduction up to Rs. 3,00,000/ subject to certain conditions.

Deduction in respect of royalty on patentee

Section 80RRB

Any individual, being resident of India being a patentee, received any income by way of royalty on a patent  registered after 31st March, 2003, will get deduction up to Rs.3,00,000/ subject to certain conditions.

Deduction in respect of interest on deposits in savings bank account

Section 80TTA

The gross total income of an Individual or HUF includes any income by way of interest on deposit in savings bank account, deduction of Rs.10,000 is permissible under this section.

Deduction in respect of Senior Citizen interest on deposits in savings bank account

Section 80TTB

The gross total income of Senior Citizen includes any income by way of interest on deposit with savings bank account, deduction of Rs. 50,000 is permissible under this section introduced from Asst. Yr. 2019-20

Deduction in the case of a person with disability

Section 80U

Any individual being resident in India is certified by the Medical Authority in the prescribe form about the disability is entitled for the following deductions from his gross total income.

Rs. 75,000/ and if severs disability find Rs. 1,25,000

INCOME FROM HOUSE PROPERTY

 

INCOME FROM HOUSE PROPERTY: CHARGEABILITY

As per Section 22 of the Income Tax Act, 1961

(1) The process of computation of income under the head “Income from house property” starts with the determination of annual value of the property. The concept of annual value and the method of determination is laid down in section 23.

(2) The annual value of any property comprising of building or land appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head “Income from house property”. However, where the property is occupied for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax as profits or gains from business or profession, the annual value of such property would not be chargeable to tax under the head “Income from house property”.

Conditions for chargeability

• The property should consist of any building (residential, factory buildings, offices, shops, godowns and other commercial premises) or land appurtenant thereto.
• Assessee must be the owner of the property
• The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax.
• Property held as stock-in-trade etc. - Annual value of house property will be charged under the head “Income from house property”, where it is held by the assessee as stock-in-trade of a business also.

Income from residential property situated outside india

(1) In case of a resident in India (resident and ordinarily resident in case of individuals and HUF), income from property situated outside India is taxable, whether such income is brought into India or not.

(2) In case of a non-resident or resident but not ordinarily resident in India, income from a property situated outside India is taxable only if it is received in India.

Determination of annual value [section 23]

Where the property is let out throughout the previous year [Section 23(1)(a)/(b)]

Where the property is let out for the whole year, then the GAV would be higher of the –

(a) Expected Rent (ER) and

(b) Actual rent received or receivable during the year

Note:

• The Expected Rent (ER) is higher of fair rent (FR) and municipal value (MV), but restricted to standard rent (SR).
• Municipal value is the value determined by the municipal authorities for levying municipal taxes on residential property.
• Fair rent means rent which similar property in the same locality would fetch
• The standard rent (SR) is fixed by the Rent Control Act.

Where let out property is vacant for part of the year [Section 23(1)(c)]

Where let out property is vacant for part of the year, loss due to vacancy is deductible from the higher of Expected Rent and actual rent received or receivable and remaining amount will be the GAV of the property.

In the case of self-occupied property or unoccupied property [Section 23(2)]

(a) If the property is self-occupied for own residence or was unoccupied throughout the previous year, its Annual Value will be Nil, as no benefit is derived by the owner from such property.

The expression “Unoccupied property” refers to a property which cannot be occupied by the owner by the reason of his employment, business or profession at a different place and he/she resides at such other place in a building that does not belonging to him/her.

(b) The benefit of exemption of one self-occupied house (two self-occupied properties - from A.Y 2020-21) is available only to an individual/HUF.

(c) No deduction for municipal taxes is allowed in respect with such property

Where a house property is let-out for part of the year and self-occupied for part of the year [Section 23(3)]

(a) If a single unit of a property is self-occupied for part of the year and let-out for the remaining part of the year, then the ER for the whole year shall be taken into account for determining the GAV.

(b) The ER for the whole year shall be compared with the actual rent for the let out period and whichever is higher shall be adopted as the GAV.

(c) However, municipal tax for the whole year is allowed as deduction, provided it is paid by the owner during the previous year.

In case of deemed to be let out property [Section 23(4)]

(a) Where the assessee owns more than one Residential property for self-occupation, then the income from any one such property (two such properties - from A.Y 2020-21), at the option of the assessee, shall be computed under the self-occupied property category and its annual value will be nil..

(b) The other self-occupied/unoccupied properties shall be treated as “deemed let out properties”.

(c) This option can be changed year after year in a manner beneficial to the assessee.

(d) In case of deemed let-out property, the ER shall be taken as the GAV.

(e) The question of considering actual rent received/receivable does not arise. Consequently, no adjustment is necessary on account of property remaining vacant or unrealized rent.

(f) Municipal taxes actually paid by the owner during the previous year, in respect of the deemed let out properties, can be claimed as deduction.

In case of a house property held as stock-in-trade [Section 23(5)]

(a) In some cases, property consisting of any building or land appurtenant thereto may be held as stock-in-trade, and the whole or any part of the property may not be let out during the whole or any part of the previous year.

(b) In such cases, the annual value of such property or part of the property shall be NIL.

(c) This benefit would be available for the period up to one year (up to two year - from A.Y 2020-21) from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.

In case of a house property, a portion let out and a portion self-occupied

(a) Income from any portion or part of a property which is let out shall be computed separately under the “let out property” category and the other portion or part which is self-occupied shall be computed under the “self-occupied property” category.

(b) There is no need to treat the whole property as a single unit for computation of income from house property.

(c) Municipal valuation/fair rent/standard rent, if not given separately, shall be apportioned between the let-out portion and self-occupied portion either on plinth area or built-up floor space or on such other reasonable basis.

(d) Property taxes, if given on a consolidated basis can be bifurcated as attributable to each portion or floor or on a reasonable basis.

Unrealized rent

• The Actual rent received/receivable should not include any amount of rent which is not capable of being realized.
• However, the conditions prescribed in Rule 4 should be satisfied. They are –

(a) The tenancy is bona fide;

(b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;

(c) The defaulting tenant is not in occupation of any other property of the assessee;

(d) The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

House Property taxes(Municipal taxes)

• House property taxes are allowed to be deducted from the GAV subject to the following two conditions: (a) It should be borne by the assessee (owner); and (b) It should be actually paid during the previous year.
• If property taxes levied by a local authority for a particular previous year is not paid during that year, no deduction shall be allowed in the computation of income from house property for that year.
• However, if in any subsequent year, the arrears are paid, then, the amount so paid is allowed as deduction in computation of income from house property for that year.
• Thus, we find that irrespective of the previous year in which the liability to pay such taxes arise according to the method of accounting regularly employed by the owner, the deduction in respect of such taxes will be allowed only in the year of actual payment.
• If the property is situated outside India, House property taxes levied by local authority of the country in which the property is situated is deductible.

Deductions from annual value [section 24]

There are two deductions from annual value. They are –

(a) 30% of NAV; and

(b) Interest on borrowed capital

(a) 30% of NAV is allowed as deduction under section 24(a):

(a) This is a flat deduction and is allowed irrespective of the actual expenditure incurred.

(b) The assessee will not be entitled to deduction of 30%, in the following cases, as the annual value itself is nil.

(i) In case of self-occupied property or

(ii) In case of property held as stock-in-trade and the whole or any part of the property is not let out during the whole or any part of the previous year, up to 1 year (2 years - from A.Y 2020-21) from the end of the financial year in which certificate of completion of construction of the property is obtained from the competent authority.

(b) Interest on borrowed capital is allowed as deduction under section 24(b):

Interest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction of house property can be claimed as deduction.

Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.

Deduction in respect of self-occupied house property where annual value is nil

In this case, the assessee will be allowed a deduction on account of interest (including 1/5th of the accumulated interest of pre-construction period) as under –

S No.	Conditions	Amount of Deduction
(A)	Loan borrowed before 1.4.99: Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital before 1.4.99.	Actual interest payable subject to maximum of ₹ 30,000.
(B)	Loan borrowed on or after 1.4.99: (i) Where the property is acquired or constructed with capital borrowed on or after 1.4.99 and such acquisition or construction is completed within 5 years from the end of the financial year in which the capital was borrowed.	Actual interest payable subject to maximum of ₹ 2,00,000
	(ii) Where the property is acquired or constructed with capital borrowed on or after 1.4.99 and such acquisition or construction is not completed within 5 years from the end of the financial year in which the capital was borrowed.	Actual interest payable subject to a maximum of ₹ 30,000.
	(iii) Where the property is repaired, renewed or reconstructed with capital borrowed on or after 1.4.99.	Actual interest payable subject to a maximum of ₹ 30,000.

Important points:

(a) The ceiling limit would not apply to let-out/deemed let-out property: The ceiling prescribed for one self-occupied property as above in respect of interest on loan borrowed does not apply to a deemed let-out property.

(b) Interest allowable on accrual basis: Deduction under section 24(b) for interest is available on accrual basis. Therefore interest accrued but not paid during the year can also be claimed as deduction.

(c) Unpaid purchase price would be considered as capital borrowed: Where a buyer enters into an arrangement with a seller to pay the sale price in installments along with interest due thereon, the seller becomes the lender in relation to the unpaid purchase price and the buyer becomes the borrower. In such a case, unpaid purchase price can be treated as capital borrowed for acquiring property and interest paid thereon can be allowed as deduction under section 24.

(d) Interest on unpaid interest is not deductible.

Provision for arrears of rent and unrealized rent received subsequently [section 25a]

Arrears of Rent / Unrealized Rent

• Taxable in the year of receipt/realization
• Deduction of 30% of rent received/realised is available
• Taxable even if assessee is not the owner of the property in the financial year of receipt/realization.

Treatment of income from co-owned property [section 26]

(1) Where property is owned by two or more persons, whose shares are definite and ascertainable, then the income from such property cannot be taxed as income of an AOP.

(2) The share income of each co-owner should be determined in accordance with sections 22 to 25 and included in his individual assessment.

(3) Where the house property owned by co-owners is self-occupied by each of the co-owners, the annual value of the property of each co-owner will be Nil and each co-owner shall be entitled to a deduction of ` 30,000 / ` 2,00,000, as the case may be, under section 24(b) on account of interest on borrowed capital.

(4) Where the house property owned by co-owners is let out, the income from such property shall be computed as if the property is owned by one owner and thereafter the income so computed shall be apportioned amongst each co-owner as per their specific share.

Deemed ownership [section 27]

As per section 27, the following persons, though not legal owners of a property, are deemed to be the owners for the purposes of section 22 to 26.

• Transfer to a spouse – In case of transfer of house property by an individual to his or her spouse otherwise than for adequate consideration, the transferor is deemed to be the owner of the transferred property. Exception– In case of transfer to spouse in connection with an agreement to live apart, the transferor will not be deemed to be the owner. The transferee will be the owner of the house property.
• Transfer to a minor child– In case of transfer of house property by an individual to his or her minor child otherwise than for adequate consideration, the transferor would be deemed to be the owner of the house property transferred. Exception– In case of transfer to a minor married daughter, the transferor is not deemed to be the owner.
• Holder of an impartible estate– The impartible estate is a property which is not legally divisible. The holder of an impartible estate shall be deemed to be the individual owner of all properties comprised in the estate.
• Member of a co-operative society etc.– A member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a House Building Scheme of a society/company/association, shall be deemed to be owner of that building or part thereof allotted to him although the co-operative society/company/ association is the legal owner of that building.
• Person in possession of a property– A person who is allowed to take or retain the possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act shall be the deemed owner of that house property.
• Person having right in a property for a period not less than 12 years– A person who acquires any rights in or with respect to any building or part thereof, by virtue of any transaction as is referred to in section 269UA(f) i.e. transfer by way of lease for not less than 12 years, shall be deemed to be the owner of that building or part thereof. Exception – In case the person acquiring any rights by way of lease from month to month or for a period not exceeding one year, such person will not be deemed to be the owner.

Cases where house property income is exempt from tax

• Section 10(1) - Income from any farm house forming part of agricultural income.
• Section 10(19A) - Annual value of any palace in the occupation of an ex-ruler.
• Section 10(20) - Income from house property of a local authority.
• Section 10(21) - Income from house property of an approved scientific research association.
• Section 10(23C) - Property income of universities, educational institutions, etc.
• Section 10(24) - Property income of a registered trade union.
• Section 11 - Income from house property held for charitable or religious purpose.
• Section 13A - Property income of any political party.

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