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A dream house is expensive and hence, most people end up taking a home loan. To help you achieve your dream of buying a new home, the government has introduced Section 24 of the Income Tax Act, 1961.
As per Section 24, income from House Property includes:
An individual can make certain deduction from the Net Annual Value of your property. The Net Annual Value does not include municipal taxes. For a self-occupied house property, the Gross Annual Value is Nil.
The standard deduction is 30% of the Net Annual Value. This is applicable, irrespective (higher or lower) of the expenditure you make on the actual property. The standard deduction is Nil on a self-occupied house property.
You can claim a deduction of up to Rs. 2 lakhs (Rs. 1,50,000 if you are filing returns for FY 2013-14) on your home loan interest for a self-occupied property. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs. 30,000. Conditions to claim Rs. 2 lakhs rebate/claiming Interest on Home Loan are as follows:
The following example will help you understand the computation of Income under House Property:
Note: The property is either self-occupied or rented out.
Following are the conditions for this example-
|Gross annual Value (Rent paid- 7000*12)||NIL||84,000|
|Less: Municipal Taxes or Taxes paid to local authorities||NA||3,000|
|Net Annual Value(NAV)||Nil||81,000|
|Less: Standard Deduction(30% of NAV)||NA||24,300|
|Less: Interest on Housing Loan||200,000||200,000|
|Less: Pre-construction interest (1/5th of 3 Lakhs)||60,000||60,000|
|Income from House Property||(260,000)||(203,300)|
|Overall loss restricted to||(200,000)||(200,000)|
The maximum loss set off allowed in a financial year is limited to Rs. 2 lakhs. The remaining loss is carried forward to the future financial years, i.e. 8 years in total.
What is pre-construction interest?
This is allowed when you have taken a loan for purchase or construction of a property. The deduction is allowed in 5 equal installments starting from the year in which the house is purchased or the construction is completed.
What is the limit on pre-construction interest?
The total amount of pre-construction interest/interest on housing loan (for the purpose of claim in a single financial year) should not exceed Rs. 2 lakhs in any case.
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