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Income Tax - Sections 80C and 24*
Posted On: 2019-01-30 Author : R.S. Garg, Chairman, Pioneer Housing Finance Academy & former Executive Director, National Housing Bank, New Delhi

Number of concessions /rebates are provided under the Income-tax Act to house owners, home financiers, developers, those letting out their houses as also those residing in rental premises. In this Article, we will examine as to whether it is advantageous to construct a house on borrowed money ? In this context, we refer to section 80C and Section 24 of the Income-tax Act.

Section 80C : Section 80 C of the Income-tax allows certain deduction from the income of a assessee in computing assessable income i.e the income on which an assessee is required to pay income tax. Number of savings instruments have been specified which qualify for deduction under this provision. They include insurance premia, national savings certificates, deposits in Public Provident Fund Account, Investment in equity oriented mutual funds etc.

One such deduction with which we are concerned in this Chapter is deduction on account of repayment of a housing loan. This makes it attractive to assesses to own/construct a house by taking a loan. Relevant provision of section 80C reads as follows:

80C (1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed one lakh fifty thousand rupees.

(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assessee -

(i) ……….
(xviii) for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head Income from house property (or which would, if it had not been used for the assessees own residence, have been chargeable to tax under that head), 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
    (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 which is eligible for deduction under clause (viii) of sub-section (1) of section 36, or
    (6) any company in which the public are substantially interested or any co-operative society, where such company or cooperative society is engaged in the business of financing the construction of houses, or
    (7) the assessees 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 assessees 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; or
  • Stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee,
  • But shall not include any payment towards or by way of (A) 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

    (B) 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

    (C) any expenditure in respect of which deduction is allowable under the provisions of section 24;

Thus it is clear that repayment of the amount borrowed, inter alia, from a housing finance company is an admissible item of deduction from income subject to the monetary ceiling specified in this section. Following conditions need to be satisfied :

  • The loan should be from a housing finance company envisaged under section 36(1)(viii).
  • The repayment should of a loan taken for long term period i.e for a period of five years or more.
  • The loan should be for purchase or construction of a residential house property, the income of which is assessable under income from house property.
  • The Loan should not be for any addition or alteration to, or renovation or repair of, the house after the receipt of completion certificate or after its occupation. In other words, the loan should be for purchase or construction of a new house.
  • The Loan should not be towards 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.
  • Deduction in respect of interest payment is not allowed under this section.

The maximum deduction admissible under this section is 150000/-. However, where the deduction is also claimed for any other instrument, the maximum deduction will remain subject to the monetary limit fixed under this section.
Where a house is owned jointly and the joint owners have taken separate loans for acquisition of the house, each owner can claim separate deduction under this Chapter in respect of the payment made by him. However, both cannot claim deduction in respect of the same payment.

Income from House Property : Under the Income tax Act, income from house property is recognized under a separate head. In this case , it is taxed on the basis of inherent capacity of a house to earn income and not actual rental income which is taken into consideration. Income from building and land appurtenant thereto is taxed under this provision, while vacant land is taxed under the head income from other sources.
For the purposes of taxation income of legal owner of such property is chargeable to tax. However, section 27 includes deemed owners for the purposes of this section as owners of the house property.

" Owner of house property"," annual charge", etc., defined For the purposes of sections 22 to 26-

(i) an individual who transfers otherwise than' for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred;

(ii) the holder of an impartable estate shall be deemed to be the individual owner of all the properties comprised in the estate;

(iii) a member of a co- operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof;

(iiia) a person who is allowed to' take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882 ), shall be deemed to be the owner of that building or part thereof;

(iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof;

House Property is charged to income tax on the basis of its annual value computed in accordance with the provision of section 23 of the Income tax Act. In case of one self occupied property, the income is taken as NIL provided the following conditions are satisfied, namely :

  • The property or any part thereof is not let out during the whole or any part of the previous year , and
  • No other benefit is derived therefrom.

Deductions admissible from income from house property :

  • Standard deduction- 30% of the net annual value irrespective of the fact whether any expenditure is incurred by the assessee.
  • Interest on borrowed capital : Interest on borrowed capital is allowable as deduction on accrual basis, if the capital is borrowed for the purchase , construction, repair renewal or reconstruction of the house property.

It has been clarified that interest on raised for repayment of the original loan is also admissible. Thus, in the case of let out property, the entire interest is admissible deduction from income from house property.

In the case of self occupied property, the maximum admissible deduction in a year is Rs. 2 lakh where the loan is taken for the purposes of acquisition or construction of the house and taken after 1.4.1999. In any other case or for any other purpose, it will be limited to Rs. 30,000/-. The house should be acquired with in 5 years(3 years upto assessment year 2016-17).

The lender should certify the loan and its purpose (i.e. purchase /acquisition/refinance).

The loss from house property can be set off against income from any other head in the same year subject to a maximum of Rs 2 lakh. However, subsequently, it can be claimed only from income from house property.