Part 3: - Deduction of Interest under House
property - Section 24 (b)
Applicability:
-
a.
An
employee owned a house property (let out
or self occupied)
b.
The
property is not in use for any business activity by the employee
c.
An
employee has taken loan for the purpose of acquisition, construction,
repairment, renewal or reconstruction of such owned house property
Limits
of maximum interest allowed as deduction under section 24(b): -
Loan Taken
|
Self Occupied
|
Let Out
|
For Repair or Renewal
|
Rs 30,000 p.a
|
Rs 30,000 p.a
|
For Acquisition or construction of the house
|
Before 1.4.99 – Rs 30,000 p.a
After 1.4.99 – Rs 1,50,000
|
No maximum limit is provide under the law
|
Note: - Such
acquisition or construction is completed within three years from the end of the
financial year in which capital was borrowed
Example 1: - House property is self occupied
House loan taken
|
|
To purchase property
On 10-11-2011
|
Rs 1,00,00,000
|
Interest rate 10%
|
Rs 10,00,000 (assumed)
|
Solution: -
Deduction allowed under section 24(b)
|
|
Interest Paid @ 10%
|
Rs 10,00,000
|
Maximum interest allowed under law
|
Rs 1,50,000
|
Hence deduction of interest under section 24 (b) Rs
1,50,000 only.
Example 2: - House property is self occupied
House loan taken
|
|
To purchase property
On 01-04-2010
|
Rs 1,20,00,000
|
Annual Installment
|
Rs 15,00,000 (of principal only)
|
Interest rate 10%
|
Of the principal amount
|
Solution: -
Principal
|
Amount
|
On 1-4-2010
|
Rs 1,20,00,000
|
Less : Ist Installment for
2010-11
|
(Rs 15,00,000)
|
Balance on 1-4-2011
|
Rs 1,05,00,000
|
Less : Ist Installment for
2011-12
|
(Rs 15,00,000)
|
Balance on 1-4-2012
|
Rs 90,00,000
|
Less : Ist Installment for
2012-13
|
(Rs 15,00,000)
|
Balance on 1-4-2013
|
Rs 75,00,000
|
Less : Ist Installment for
2013-14
|
(Rs 15,00,000)
|
Balance on 31-03-2014
|
Rs 60,00,000
|
Assumed interest is calculated after the payment of
principal
Deduction allowed
under section 24(b)
|
|
Interest Paid @ 10%
60,00,000*10%
|
Rs 6,00,000
|
Maximum interest allowed under law
|
Rs 1,50,000
|
Hence deduction of interest under section 24 (b) Rs
1,50,000 only
Example 3: - House property is self occupied and not constructed in
three years
House loan taken
|
|
To construct property
On 01-04-2009
|
Rs 2,40,00,000
|
Annual Installment
|
Rs 20,00,000 (of principal only)
|
Interest rate 10%
|
Of the principal amount
|
House property constructed on
|
31.01.2014
|
Solution: -
Principal
|
Amount
|
On 1-4-2009
|
Rs 2,40,00,000
|
Less : Installment for 2009-10
|
(Rs 20,00,000)
|
Balance on 1-4-2010
|
Rs 2,20,00,000
|
Less : Installment for 2010-11
|
(Rs 20,00,000)
|
Balance on 1-4-2011
|
Rs 2,00,00,000
|
Less : Installment for 2011-12
|
(Rs 20,00,000)
|
Balance on 1-4-2012
|
Rs 1,80,00,000
|
Less : Installment for 2012-13
|
(Rs 20,00,000)
|
Balance on 1-4-2013
|
Rs 1,60,00,000
|
Less : Installment for 2013-14
|
(Rs 20,00,000)
|
Balance on 31-03-2014
|
Rs 1,40,00,000
|
Assumed interest is calculated after the payment of
principal
To Claim deduction of Rs 1,50,000 the condition (house
must be constructed within three years) must be satisfied. Otherwise deduction
will be limited to Rs 30,000 only instead of Rs 1,50,000.
Deduction allowed under section 24(b)
|
|
Interest Paid @ 10%
1,40,00,000*10%
|
Rs 14,00,000
|
Maximum interest allowed under law
(as property is not constructed within 3 years)
|
Rs 30,000
|
Hence deduction of interest under section 24 (b) Rs 30,000
only
Pre Construction
Interest: -
As per Section 24(b) ““Where the
property has been acquired or constructed with borrowed capital, the interest,
if any, payable on such capital borrowed for the period prior to the previous
year in which the property has been acquired or constructed, as reduced by any
part thereof allowed as deduction under any other provision of this Act, shall
be deducted under this clause in equal installments for the said previous year
and for each of the four immediately succeeding previous years:]””
Applicability: -
Loan taken for
Construction
|
Loan taken for
purchase
|
a. For the period before house is
constructed
b. Interest of such period is
summed up and deducted in 5 equal installments
|
a. For the period before the house
is under acquisition of person
b. Interest of such period is
summed up and deducted in 5 equal installments
|
Meaning: -
a. Deduction of interest is allowed
only from the year when the house is fully constructed or has been acquired
b. No deduction of interest for the
period when the house property is under construction or not in acquisition.
Example 1: -
House loan taken
|
|
To construct property
On 01-04-2011
|
Rs 15,00,000
|
Annual Installment
|
Rs 1,00,000 (of principal only)
|
Interest rate 10%
|
Of the principal amount
|
House property constructed on
|
31.01.2014
|
Solution: -
a. House is constructed with in 3
years
b. Deduction of interest will be
allowed from the year 2013-14 only, as house is constructed only in 2013-14 only
c. Interest paid before 2013-14 will
be treated as pre construction interest , will be allowed in 5 equal
installment
Principal
|
Amount
|
Interest
|
Balance on 1-4-2011
|
Rs 15,00,000
|
|
Less : Installment for 2011-12
|
(Rs 1,00,000)
|
For 2011-12
14,00,000*10% = 1,40,000
|
Balance on 1-4-2012
|
Rs 14,00,000
|
|
Less : Installment for 2012-13
|
(Rs 1,00,000)
|
For 2012-13
13,00,000*10% = 1,30,000
|
Balance on 1-4-2013
|
Rs 13,00,000
|
|
Less : Installment for 2013-14
|
(Rs 1,00,000)
|
For 2013-14
12,00,000*10% = 1,20,000
|
Balance on 31-03-2014
|
Rs 12,00,000
|
a. House is constructed in 2013-14 (31.01.2014) hence interest paid on 2013-14 will be allowed in 2013-14
b. Interest paid prior to the period
2013-14 will be considered as pre construction interest
In simple meaning: -
Pre Construction period:-
From the date of Loan taken i.e. 1-4-2011
TO
The previous year to the year when house is constructed
(house constructed on 31-01-2014 hence previous year is 31-03-2013)
So period of pre construction is 1-4-2011 to 31-03-2013)
Amount of Pre Construction interest is Interest for
2011-12 and 2012-13 i.e. Rs 2,70,000
(1,40,000+1,30,000)
Which is allowed in 5 equal Installments starting from the
year of construction
Deduction of Pre Construction Interest Allowed as: -
Year
|
Details
|
Amount
|
2013-14
|
Year of Construction
270000/5
|
Rs 54,000
|
2014-15
|
270000/5
|
Rs 54,000
|
2015-16
|
270000/5
|
Rs 54,000
|
2016-17
|
270000/5
|
Rs 54,000
|
2017-18
|
270000/5
|
Rs 54,000
|
Deduction allowed under section 24(b)
|
|
Interest Paid @ 10%
12,00,000*10% = 1,20,000
Add: - Pre Construction Interest
i.e. Rs 54,000
|
Rs 1,74,000
|
Maximum interest allowed under law
|
Rs 1,50,000
|
Hence deduction of interest under section 24 (b) Rs 1,50,000
only
Example 2: -
House loan taken
|
|
To construct property
On 01-04-2012
|
Rs 10,00,000
|
Annual Installment
|
Rs 1,00,000 (of principal only)
|
Interest rate 10%
|
Of the principal amount
|
House property constructed on
|
31.01.2014
|
Solution: -
a. House is constructed with in 3
years
b. Deduction of interest will be
allowed from the year 2013-14 only, as house is constructed only in 2013-14
only and not before
c. Interest paid before 2013-14 will
be treated as pre construction interest , will be allowed in 5 equal
installment
Principal
|
Amount
|
Interest
|
Balance on 1-4-2012
|
Rs 10,00,000
|
|
Less : Installment for 2012-13
|
(Rs 1,00,000)
|
For 2012-13
9,00,000*10% = 90,000
|
Balance on 1-4-2013
|
Rs 9,00,000
|
|
Less : Installment for 2013-14
|
(Rs 1,00,000)
|
For 2013-14
8,00,000*10% = 80,000
|
Balance on 31-03-2014
|
Rs 8,00,000
|
a. House is constructed in 2013-14
(31.01.2014) hence interest paid on 2013-14 will be allowed in 2013-14
b. Interest paid prior to the period
2013-14 will be considered as pre construction interest
In simple meaning: -
Pre Construction period:-
From the date of Loan taken i.e. 1-4-2012
TO
The previous year to the year when house is constructed
(house constructed on 31-01-2014 hence previous year is 31-03-2013)
So period of pre construction is 1-4-2012 to 31-03-2013
Amount of Pre Construction interest is Interest for
2012-13 i.e. Rs 90,000
Which is allowed in 5 equal Installments starting from the
year of construction 2013-14
Deduction of Pre Construction Interest Allowed as: -
Year
|
Details
|
Amount
|
2013-14
|
Year of Construction
90,000/5
|
Rs 18,000
|
2014-15
|
90,000/5
|
Rs 18,000
|
2015-16
|
90,000/5
|
Rs 18,000
|
2016-17
|
90,000/5
|
Rs 18,000
|
2017-18
|
90,000/5
|
Rs 18,000
|
Deduction allowed under section 24(b)
|
|
Interest Paid @ 10%
8,00,000*10% = 80,000
Add: - Pre Construction Interest
i.e. Rs 18,000
|
Rs 98,000
|
Maximum interest allowed under law
|
Rs 1,50,000
|
Hence deduction of interest under section 24 (b) Rs 98,000
only
By CA
Ashish Barthwal
If have any query:
- contact ca_ashishbarthwal@yahoo.com
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