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The Income Tax Act 1961 (the Act) provides benefits for immovable property (including any buildings or lands appurtenant thereto) owners and buyers (specifically ‘Individual’ assessees, as discussed below) for prescribed expenditures and investments in such assets, some of which have been briefly discussed below.

> For information on beneficial provisions of the Act and latest Finance Act 2017 on transfer (and consequential capital gains) of residential house property, please read ‘Latest Income Tax provisions (additions/amendments) for Immovable Property – Finance Act 2017’.


Deduction for Interest on Borrowed Capital

When computing income (‘annual value’) under the head ‘Income from House Property’, section 24(b) of the Act allows a deduction against the (gross) annual value (as computed for the relevant house property) for sums paid towards interest on borrowed capital (such as home loans), where such said property has been acquired, constructed, repaired, renewed or reconstructed with the same.

The quantum and eligibility of such deduction however varies in the manner provided below.


Self-Occupied Residential Property

  • Limited to Rs.30,000 per year for Individuals, for interest paid on borrowed capital used in acquiring, constructing, repairing, renewal or reconstruction of such property (with ‘nil’ annual value);
  • Limited to Rs.2 lacs, where such property is acquired or constructed with capital borrowed on or after the 1 April 1999 and the same is completed within 5 years from the end of the financial year in which borrowed.
  • Pre-Acquisition/Construction Interest, any such interest incurred pertaining to the period prior to the year of acquisition/ construction of the said property, will be allowed as deduction (as reduced by any part thereof allowed as deduction under any other provision of the Act) in 5 equal instalments (beginning with the year of acquisition/construction).


Let-out (or deemed ‘let-out’) Property

  • Actual interest (unlimited) incurred on capital borrowed for acquisition, construction, repairing, re-construction allowed as deduction for ‘let-out’ or ‘deemed let-out’ property.


Deductions from Total Income – Benefits for Individuals

For the purpose of computing the ‘total income’ of a person (assessee), the provisions of Chapter VIA of the Act allows ‘deductions‘ from the concerned assessee’s ‘gross total income’ (GTI) in accordance with sections 80-IAC to 80VV and subject to any conditions and restrictions prescribed therein.

> Read more on ‘Deductions’ and ‘Total Income’

 

Deduction under Section 80C

For computing the ‘total income’ of an assessee (Individual or Hindu Undivided Family), a deduction is allowed (subject to a maximum of Rs.150,000) for the whole of the amount paid or deposited in the relevant previous year by the said assessee for the purposes of purchase or construction of a residential house property (income from which is chargeable to tax under the head “Income from house property”), where such payments are made towards or by way of —

  • Any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or
  • Any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or
  • Repayment of the amount borrowed by the Assessee from prescribed sources** ; or
  • Stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the Assessee.

**
(1) The Central Government or any State Government, or

(2) Any bank, including a co-operative bank, or
(3) The Life Insurance Corporation, or
(4) The National Housing Bank, or
(5) Any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes etc. or
(6) Any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or
(7) The Assessee’s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or
(8) The assessee’s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society.

 

Excluded Payments

Above said deductions shall not be allowed for any payment towards or by way of the following —

  • The admission fee, cost of share and initial deposit which a Shareholder of a Company or a Member of a Co-operative Society has to pay for becoming such Shareholder or Member; or
  • The cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or
  • Any expenditure in respect of which deduction is allowable under the provisions of section 24 (as above discussed).


Disqualification and Income Add-back

Where such house property is transferred before the expiry of 5 years from the end of the financial year in which possession of such property is obtained, or such sum paid is received back (by way of refund or otherwise) —

  • No such deduction will be allowed to the said Assessee with reference to any such sums paid in such previous year; and
  • The aggregate amount of the deductions of income so allowed (if any) in respect of the previous year(s), will be ‘deemed’ to be the income of the said Assessee of such previous year and liable to tax in the Assessment year relevant to such previous year.

 

Financial Act 2017 and Limit to Loss set-off

Section 71 of the Act allows a loss computed under one head of income to be set-off (subject to prescribed conditions and manner) against assessable income computed another head, which for loss under the head ‘Income from House Property’ for Assessment year 2018-19 onwards has been limited to Rs.2 lacs, and such restriction may now require additional tax planning measures.

> Read more on ‘Heads of Income’ and ‘Loss Set-Off’

 

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