Interest Deduction on Rented House Property | Income Tax Return


Constructing/ purchasing a new house is not an easy task. A common man exhausts all his life’s saving & also take a home loan to make this dream a reality. Hence to help the citizens, income tax act provides deduction of interest paid on home loan under Section 24.

Section 24 of income tax act says that, if any house is acquired, constructed using borrowed capital. Then interest paid on such borrowed capital is eligible for deduction & the amount of deduction is as follows:


Case

Maximum Interest Deduction

(₹)

Capital is borrowed for purchase & construction of house. And such house is purchased/ constructed within 5 years from end of FY in which capital was borrowed.

₹2,00,000

Capital is borrowed

  • Before 1/4/99 (for purchase, construction, repair, renewal, reconstruction).
  • On or after 1/4/99 (for repair, renewal or reconstruction).
  • If any conditions in first condition is not satisfied.

₹30,000


Now, there are 2 situations when it comes to house property income:

  • Situation 1: Your house property is self-occupied
  • Situation 2: You have rented out the house property

In both situations the treatment of interest deduction is different. Let us discuss them one by one.


When the house is self occupied

If you have taken a home loan to build/purchase a house for your own use then interest paid is eligible for deduction.

Generally in case of self-occupied house, the annual value is NIL. Therefore, any municipal taxes paid will not be allowed & standard deduction will also be NIL. The only amount which will be allowed as deduction shall be Interest on borrowed capital which will be limited to ₹2 Lac. This will generate a loss under house property head which can be set-off from other heads income.

Now, one important thing to note is regarding carry forward of interest amount exceeding 2 Lac.

For e.g. in FY 2017-18, you took a home loan of ₹1 crore & paid ₹5 lac as interest in the same year. As per Sec 24, only ₹2 lac will be allowed as interest deduction & this will be set-off from other head income as house property loss. Balance ₹3 lac will not be allowed to be carried forward & will lapse.


When the house is let-out

The treatment of let-out property is different from self-occupied. In this case, the Gross Annual Value needs to determined. You can refer our blog to determine GAV & other related aspects of rented house.

The additional benefit of renting out the property is that you can carry forward extra loss. In the above example, you can mention whole amount of ₹5 las as interest u/s 24. Out of this only ₹2 lac will be allowed as deduction & you can carry forward excess interest of ₹3 lac for next 8 AY’s. While in case of self-occupied property, this loss will lapse.


Some Common FAQ


Can I mention interest amount exceeding ₹ 2,00,000 ?

If the house is self-occupied then you can’t mention amount exceeding ₹2 lac. In case of rented property, it is possible to mention amount more than ₹2 lac as excess loss will be allowed to be carried forward.

What if my property is self-occupied & not let-out?

As discussed above, for self occupied property maximum amount of deduction is ₹2 lac. Hence, it is not possible to mention amount exceeding ₹2 lac.


We hope our blog was able to solve your queries regarding interest deduction on rented as well as self-occupied house property. Still, if you need any further assistance, our eCAs are available to help you 24×7.

Happy Filing 🙂     

     

Author


Team Tax2Win