Deduction from Rental Income| Deduction from Annual Value of House Property.
Rental Income
Rental income from a property is chargeable to tax under the head Income from house property.
Meaning of property
Property should consist of any building or land appurtenant (means land connected with the building like garden, garage etc.) thereto.
Note:- Building includes residential building, factory buildings, offices, shops, godowns and commercial premises.
Deduction from Annual Value of House Property
Deduction under section 24:-
Under section 24(a) – Flat deduction i.e., 30% of Net Asset Value (NAV).
Note:- The above deduction (30% of NAV) will not be available if annual value of house property is Nil.
Note:- in case of self-occupied property and property held as stock in trade and property is not let-out, upto 2 years from the end of the financial year in which certificate of completion of construction of the property is obtained from the competent authority, the annual value of house property is Nil.
Under section 24(b) – Interest on borrowed capital.
- Deduction can be claimed of Interest on loans borrowed for the purpose of acquisition, construction, renovation, repair or reconstruction.
Note:-Interest on fresh loan taken for repayment of previous loan is also allowed as deduction.
Note 1:- It also includes interest for pre-construction period. Pre-construction period is the period prior to the previous year in which property has been acquired or constructed. Interest for pre-construction period can be claimed as deduction over a period of 5 years in equal installments from the year in which construction is completed or property is acquired.
Note 2:- Full interest of the year in which construction is completed or property is acquired can be claimed.
Special Note:-There is limit on deduction of interest in case of self–occupied property where the annual value of property is Nil.
| Sr. No | Conditions | Deduction |
|---|---|---|
| 1 | 1. If loan was taken on or after 01.04.1999 for construction or acquisition of property and construction of property is completed within 5 years from the end of the financial year in which loan was taken. 2. furnish Certificate of payment of interest received from borrower. | Maximum Rs. 200000/- |
| 2 | If loan was taken on or after 01.04.1999 for repair, renovation or reconstruction of property. | Maximum Rs. 30000/- |
| 3. | If loan was taken before 01.04.1999 for acquisition, construction, repair, renovation or reconstruction. | Maximum Rs. 30000/- |
Imp. Note:- This is for maximum 2 self-occupied property and deduction of interest under point 1 and 3 as mentioned above cannot exceed Rs. 200000/-
Key Points:-
- Rental income is charged to tax in the hands of owner of the property.
- Rent received by tenant from sub–letting is taxable under the head Income from other sources or profits and gains from business or profession.
- Composite rent includes rent of building and other assets/services/facilities.
- GAV is higher of expected rent and actual rent [expected rent is the higher of fair rent and municipal value, but restricted to standard rent.
- If municipal taxes due but not paid by owner then it cannot be deducted.
- If interest is paid on loan taken from relatives and friends for acquisition, construction, renewal, repair or reconstruction then can be claimed as deduction.
- Limit is Rs. 200000/- or Rs. 30000/- is applicable in case of self-occupied property.
- Self-occupied property means property which is occupied throughout the year for own residence.
- Person can claim two properties as self-occupied property.
- Unrealized rent is charged to tax after deduction of sec. 24(a).